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UPDATE 2-Peabody Energy profit jumps despite rail woes
Tue Jul 19, 2005 02:14 PM ET
(Adds more details, background, analyst comment, stock up)
By Steve James
NEW YORK, July 19 (Reuters) - Peabody Energy (BTU.N: Quote, Profile, Research) , the largest U.S. coal company, said on Tuesday its second-quarter profit more than doubled on sky-high prices and demand, despite railroad problems curtailing shipments to power stations.
Noting the global coal industry grew 25 percent in the last three years, Peabody's revenue rose 21 percent in the quarter to $1.11 billion and it forecast operating performance and strong markets would lead profits to even higher levels.
But the company left its earnings estimates unchanged because of transport uncertainty in Australia and the United States.
However, the St. Louis-based company said the U.S. coal supply-demand balance remains tight. Second-quarter electricity generation increased about 1.5 percent and Peabody estimates coal-fueled generation rose more than 3 percent.
"Inventories at U.S. generators are on pace to decline to record low levels by the end of summer," said President and Chief Executive Officer-elect Gregory Boyce. "Continued economic growth, decreased nuclear generation, high costs of natural gas and oil, and favorable summer weather all are boosting U.S. coal demand."
Net income in the quarter rose to $95.3 million, or 71 cents a share, from $41.5 million, or 32 cents a share last year, Peabody said. Analysts on average were expecting 69 cents a share, according to Reuters Estimates.
Peabody said the improvement occurred despite temporary geological problems that reduced shipments and increased costs at a mine in West Virginia, and severe rail disruptions that lowered western Powder River Basin shipments by about 3.5 million tons.
"By adjusting shipments among our three mines in Wyoming to minimize the impact of rail disruptions, we increased first half shipments by 8.7 percent," said Boyce.
Combined with geology and transportation issues in Australia, these factors lowered earnings before interest, taxation, depreciation and amortization (EBITDA) by approximately $40 million to $50 million for the quarter.
By contrast, two of Peabody's major U.S. rivals, Arch Coal Inc. (ACI.N: Quote, Profile, Research) and Massey Energy Co. (MEE.N: Quote, Profile, Research) warned last week that rail delivery disruptions would hurt full-year profits.
Arch and Peabody both mine approximately two-thirds of their coal in the Powder River Basin of Wyoming and Montana, where track work following rain-caused derailments is expected to curtail shipments for most of this year.
"The bottom line was a strong quarter," analyst Ian Synnott, of Natexis Bleichroeder, said of Peabody's results. "It was particularly encouraging in terms of their management of the railroad difficulties.
"Although that (rail problems) could be a bit of a drag on EBITDA in the next two quarters, it's not terribly significant and their guidance looks reasonable," said Synnott.
To meet robust demand, Peabody increased sales volumes in the second quarter and said it sold an industry record 116.9 million tons in the first half of 2005. Excluding the transportation issues, volumes would have been approximately 4 million tons higher in the first half.
In the second quarter, the company reached agreements representing 68 million tons of future coal sales for terms ranging up to 10 years.
Peabody said it is targeting full year profit of $2.50 to $3.10 per share and EBITDA of $775 million to $875 million. It is targeting third-quarter earnings of 60 cents to 90 cents per share and EBITDA of $210 million to $240 million.
The company's shares rose $2.43, or 4.4 percent to $57.83 in afternoon trading on the New York Stock Exchange.
Peabody said it believes that near-term and long-term coal market fundamentals remain "outstanding," with 2005 coal demand expected to set another record.
The company is targeting 2005 production of 210 million to 220 million tons and total sales volume of 240 million to 250 million tons. It has essentially sold out its planned 2005 production and Peabody's total unpriced volumes include approximately 35 million to 45 million tons for 2006 and 110 to 120 million tons for 2007. |
