This summary is based on the first quarter fiscal 2007 earnings call conducted by Peabody Energy Corp. (BTU) on April 19, 2007.
Key Investors Issues
- Earnings total 33 cents per share on net income of $88.5 million
- Revenues increase to $1.37 billion from $1.31 billion in prior year
- EBITDA rises to $269.6 million compared with $259.4 million in prior year
- Cash flow from operations grows to $247 million and debt reduced by $100 million
First Quarter Highlights
Revenues grew to $1.37 billion compared with $1.31 billion in the prior year, led by a 28% increase in realized pricing for premium Powder River Basin product.
- Australian revenues were 88% above year-ago levels, reflecting the October 2006 acquisition of Excel Coal.
- Higher Powder River Basin pricing and Australia volumes were partly offset by reduced shipments from the Powder River Basin.
EBITDA rose to $269.6 million from $259.4 million in the prior year.
Results from mining operations reflected increased Western U.S. coal pricing and the contribution of Excel Coal. Trading and Brokerage and Resource Management continued to provide contributions, totaling a combined $72.1 million of EBITDA.
- As expected, first quarter results reflect higher depreciation, depletion and amortization (DD&A) and interest expense associated with the Excel acquisition, while earnings have yet to fully benefit from Excel mines that will come on line throughout the year. As a result of the increases in DD&A and interest, net income was $88.5 million, or 33 per share, compared with prior-year income of $130.2 million or 48 cents per share.
EBITDA was reduced by approximately $40 million related to:
- Adverse weather conditions across the United States, including a blizzard that effectively shut down Powder River Basin shipments during the last week of March;
- Congestion at ports in Australia, reflecting the strong global coal demand. Congestion at Australia coal export terminals led to mandatory reductions of throughput entitlements for coal shippers, ranging from 10% to 15% for the remainder of the year. These short-term corrective measures should lead to improved long-term coal shipments and reduced demurrage costs;
- The effects of currency translation related to the weak U.S. dollar.
Cash flow from operations increased to $247 million and the company reduced debt by approximately $100 million.
Based on most recent published data, Peabody again operated the two most productive coal mines in North America in 2006. Peabody’s North Antelope Rochelle Mine earned the Wyoming Governor’s Award for operating the safest surface mine in the state in 2006. The Harris and Federal mines earned Mountaineer Guardian Awards for excellence in safety from the West Virginia Office of Miners’ Health, Safety and Training. Peabody earned international recognition as one of the leading examples of sustainable development by placing in the top 2% among more than 700 entries in the Energy Globe Awards, for the company''s activities on Arizona’s Black Mesa. Peabody operations also received statewide reclamation awards for projects in Indiana, Colorado and West Virginia.
Coal prices have increased in all key international markets, with thermal coal pricing from Newcastle rising more than 25% since the company completed its Excel acquisition last fall.
- Much of this growing global demand is being driven by Pacific Rim nations.
- Consistent with Peabody’s expectations, China has become a net coal importer in 2007, with coal exports down more than 30% and China increasing its imports.
- This is a significant change for a nation that four years ago exported 83 million tons more than it imported. With more Chinese coal staying on the mainland, coal buyers from Korea, Japan, China and other Asian nations are looking to Australia for coal supplies. India has become an aggressive coal purchaser from both Pacific and Atlantic markets, and the pricing for the key delivered coal product to Europe approached record levels in early April.
Projections of long-term global coal demand also continue to increase.
India raised its expectation of annual coal demand by more than 1 billion tons by 2032 – more than triple earlier estimates of the U.S. Energy Information Administration. New coal- fueled generation capacity is being developed around the world, and China is constructing 65,000 to 70,000 megawatts of capacity that is expected to come on line in 2007.
Overall U.S. electricity generation has increased 5% over the prior year while coal production is nearly 2% lower than the prior year, including an 8% reduction in Appalachia coal shipments.
Within U.S. markets:
- U.S. coal production has been further tightened in recent weeks with the blizzard in the Powder River Basin, a major mine closing in the Illinois Basin, strikes at two mines in Northern Appalachia, and a court decision that could initially threaten more than 100 million tons of coal production at surface mines in Appalachia;
- In addition to exporting metallurgical coal from the United States, Peabody has exported steam coal from the Illinois Basin;
- Union Pacific has lifted its two-year-old moratorium on new coal supply transportation agreements, which is expected to enable more Powder River Basin coal to move into the market, and the Western railroads continue to make significant investments in rail upgrades to meet demand growth;
