Peabody Energy Corp. (BTU)
Q1 2009 Earnings Call Transcript
April 15, 2009 11:00 a.m. ET

Executives

Vic Svec – Senior Vice President, Investor Relations and Corporate Communications
Gregory H. Boyce -Chairman and Chief Executive Officer
Michael C. Crews – Executive Vice President and Chief Financial Officer
Richard A. Navarre - President and Chief Commercial Officer

Analysts

James Rollyson - Raymond James
Michael Dudas - Jefferies & Co.
Brian Gamble - Simmons & Company International
Paul Forward - Stifel Nicolaus & Company, Inc.
Jeremy Sussman - Natixis Bleichroeder
John Bridges - JPMorgan
Lawrence Jones - Barclays Capital
Brian Singer - Goldman Sachs & Co.
Meredith Bandy - BMO Capital Markets
Michael Goldenberg - Luminus Management
Brian Yu - Citigroup
Mark Liinamaa - Morgan Stanley
David Gagliano - Credit Suisse
Luther Lu - FBR Capital Markets

Presentation

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Peabody Energy quarterly earnings conference call. For the conference, all the participant lines are in a listen-only mode. However, there will be an opportunity for your questions and instructions will be given at that time. If you need any assistance during today’s call, please press “*” then “0”. As a reminder, today’s call is being recorded.

With that being said, I''ll turn the conference now to the Senior Vice President, Investor Relations and Corporate Communications, Mr. Vic Svec. Please go ahead, sir.

Vic Svec

Well, thank you, John, and good morning, everyone. Thanks for taking part in the conference call for BTU.

Today our Chairman and CEO, Greg Boyce, will provide an overview of Peabody''s position in the current macroenvironment, our EVP and Chief Financial Officer, Mike Crews, will review our positive first quarter, and President and Chief Commercial Officer, Rick Navarre will discuss the market fundamentals.

Our forward-looking statements should be noted with the MD&A section of our filed documents as well as the language at the end of our release, and we also refer you to PeabodyEnergy.com for additional information.

And with that I''ll turn the call over to Greg.

Gregory H. Boyce

Thanks, Vic, and good morning, everyone. While Mike will review the financials and Rick will cover the current markets, I would like to discuss the larger trends and global effects of what we are seeing during this recession and how we are positioning Peabody to succeed in the near-term and grow over the longer term. And given the significant losses occurring across so much of industry we are very pleased to report increases in our major financial metrics through the toughest economic conditions any of us have seen. We believe that''s what you''ve come to expect and why you should invest in a bellwether company.

I''ll start by noting that the global economic downturn is leading to effects that are unprecedented. In the metallurgical coal markets, we are selling to an industry that is 23% down globally. China remains the only bright spot, up 3% year to date on production, while steel production is down 25% to 40% across the rest of Asia, 45% in Europe.

But no market has been hit harder than the U.S. steelmakers, who are down 50% year to date. Steel mill capacity utilization will improve as orders pick up and the year-over-year comps likely become easier in the back half, but it is difficult to find a period in history with such disruptive production cuts.

Global generation is stronger in the Pacific market than the U.S. and Europe. U.S. electricity generation is down over 4% this year, which would mark the first time in the 60 years of government data that U.S. generation declined for two successive years. This has a strong impact on coal markets when you combine it with lower exports, high stockpiles and inexpensive natural gas.

There are potential early signs of stabilization, however. Steel destocking appears to have largely concluded. The steel mills are running at a higher capacity than their lows of December, although still at very low levels. The benefits of stimulus packages have yet to work through the system, and we''re now just a month away from the beginning of the summer burn season and a typically sustained draw on stockpiles.