Peabody Energy credits “coal supercycle” for soaring profits

Source: Peabody Energy 

Peabody Energy (NYSE: BTU) has reported full-year 2010 EBITDA of $1.82 billion, a 41 percent increase over prior-year levels. Income from continuing operations rose 76 percent to $805.1 million, with diluted earnings per share from continuing operations of $2.87. Adjusted diluted earnings per share from continuing operations increased 59 percent to $3.05. The company also set a new record for revenues of $6.86 billion on sales of 245.9 million tons. 

"Peabody delivered the second best year in company history, with record safety performance, strong cost containment and margin expansion in every operating region," said Peabody Energy Chairman and Chief Executive Officer Gregory H. Boyce.

"While heavy rains and other supply disruptions create near-term logistics challenges, they also result in significant market upside for Peabody's unpriced metallurgical and thermal export coal beyond the first quarter. At the same time, our platform is in expansion mode to serve the seaborne Pacific markets, which have the greatest sustainable growth opportunities and pricing leverage," Boyce continued. 

RESULTS FROM CONTINUING OPERATIONS
 
Revenues for the full year increased $847.6 million to $6.86 billion, driven by higher volumes and pricing from mining operations in both the United States and Australia. 2010 sales volumes totaled 245.9 million tons compared with 243.6 million tons in 2009. Australia shipments grew 21 percent to 27 million tons, including 9.8 million tons of metallurgical coal and 11.1 million tons of seaborne thermal coal. Australian revenues rose 50 percent on rising prices for both metallurgical and seaborne thermal coal. U.S. revenues increased due to higher average realized prices in both the Midwestern and Western regions.

Consolidated EBITDA totaled $1.82 billion compared with $1.29 billion in the prior year, led by record Mining Operations contributions. 

Income from continuing operations was $805.1 million with adjusted income from continuing operations climbing 60 percent to $852.7 million. Diluted earnings per share from continuing operations reached $2.87 compared to $1.64 in the prior year, a 75 percent increase. Full-year adjusted diluted earnings per share rose 59 percent to $3.05. 

GLOBAL COAL MARKETS AND PEABODY'S POSITION 

Peabody believes the world is in the early stages of a long-term supercycle for coal as China, India and other emerging nations dramatically increase energy use, steel consumption grows globally, oil becomes increasingly scarce and expensive and alternatives lack the cost and scale to effectively compete. 

"The long-term supercycle for coal is strengthening with each passing day," said Boyce. "Nations such as China and India are growing 8 to 10 percent per year off a much larger base. Hundreds of millions of people each year are moving to the cities, switching on technologies and extending coal's role as the fastest growing fuel." 

Economic growth in emerging Asia is expected to be the driver of large increases in thermal and metallurgical coal. Through 2015, approximately 390 gigawatts of new coal-fueled generation are expected to be built globally, requiring 1.2 billion tonnes of annual coal supply. Global steel production is expected to rise more than 30 percent during that time, requiring approximately 300 million tonnes of additional metallurgical coal supply annually. 

Demand for U.S. coal rose approximately 75 million tons in 2010, led by a 5.5 percent increase in coal-fueled generation and an 18 million ton rise in exports. 

U.S. coal generation accounted for nearly two-thirds of the growth in total power output, outpacing natural gas and all other fuels. The higher coal demand was related to new coal-fueled generation, favorable weather, and a partial reversal of 2009's coal-to-gas switching. 

Indexed U.S. coal prices continued to rise in 2010 in all regions, with increases ranging from 30 to 50 percent.
Peabody believes U.S. coal demand will increase modestly in 2011, led by colder winter weather in the first quarter and stronger GDP growth in the back half. The company anticipates more significant economic growth in 2012 and beyond, resulting from stronger consumer spending and industrial activity. 

Additional near-term export opportunities are developing, with favorable current economics for Illinois and Colorado coal to Europe and Powder River Basin (PRB) coal to Asia and Europe. 

For 2011, the company is targeting total sales of 245 to 265 million tons including 28 to 30 million tons from Australia, 195 to 205 million tons from the United States and the remainder from Trading and Brokerage activities. 

Peabody Energy is the world's largest private-sector coal company and a global leader in clean coal solutions. Its coal products fuel approximately 10 percent of U.S. power and 2 percent of worldwide electricity.



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