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Peabody profit falls on lower prices, but beats expectations

By Allison Martell

(Reuters) - Peabody Energy Corp reported a surprise second-quarter profit on Tuesday as it benefited from a lower-than-expected tax rate, and shares of the world's largest private-sector coal miner jumped more than 7 percent.

Peabody is the first major U.S. coal producer to report earnings, and shares of some of its rivals rose as well.

But Raymond James analyst James Rollyson said Peabody's operating results fell short of his expectations because of lower prices.

Margins fell sharply in the company's Australian segment. Earnings before interest, taxes, depreciation and amortization, excluding special items, dropped 53 percent to $112.5 million in the country as lower prices offset a slight rise in volume.

Peabody said it would cut 170 jobs in Australia, or about 5.7 percent of its workforce there.

Much of Peabody's Australian coal is exported to steel producers in Asia, Europe and South America, and a slowdown in Chinese growth, paired with a glut of steelmaking capacity, has weighed on metallurgical coal prices in recent quarters.

Peabody acquired Australia's Macarthur Coal for nearly $5 billion in 2011, hoping that strength in the Asian business would offset weakness in the United States.

The miner also sells thermal coal for producing electricity. With low natural gas prices, U.S. power plants have been burning less coal.

But natural gas futures are well above their 2012 lows, and Peabody is upbeat on the thermal market.

Natural gas generation has "declined sharply," Chief Executive Officer Gregory Boyce said in a release. "Combined with reduced coal production, U.S. coal inventories are expected to improve to their lowest levels in several years."

COSTS IN FOCUS

Peabody said it would keep reining in costs by cutting contractors and overtime, and it lowered its 2013 capital expenditure target by $100 million, to between $350 million and $450 million.

"They seem to be doing a pretty good job on costs," said Rollyson, but he also noted that the weaker Australian dollar had benefited Peabody.

Net income attributable to common shareholders dropped to $90.3 million, or 33 cents a share, from $204.7 million, or 75 cents a share, a year earlier.

Analysts on average had been expecting a loss of 5 cents a share, according to Thomson Reuters I/B/E/S.

Revenue fell to $1.73 billion from $1.98 billion. The analysts' average estimate was $1.82 billion.

Shares of Peabody rose 7.2 percent to $17.50 in morning trading on the New York Stock Exchange.

"The stock has been, obviously, under pressure for a while now," Rollyson said. "But I wouldn't say the 33-cent number is a nice, clean number."

Alpha Natural Resources Inc's shares were up 6 percent at $6.00, and Arch Coal Inc gained 4.3 percent to $4.19.

(Reporting by Allison Martell in Toronto; Editing by Lisa Von Ahn)

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