Peabody Energy's Fortunes Rise

Peabody Energy Corp. (NYSE: BTU) reported third-quarter results before markets opened this morning. The coal mining company posted adjusted diluted earnings per share (EPS) of $0.51 on revenues of $2.06 billion. In the same period a year ago, the company reported EPS of $0.90 on revenues of $1.98 billion. Third-quarter results compare to the Thomson Reuters consensus estimates for EPS of $0.34 and $1.97 billion in revenues.

The company's CEO said:

Peabody remains focused on significant cost containment and capital discipline activities and expects to realize the benefit of these programs over the next year. While the global coal environment remains challenged, there are indications that markets are stabilizing through U.S. gas-to-coal switching, higher European coal-fueled generation and increased China infrastructure spending.

The company forecast adjusted diluted EPS for the full 2012 fiscal year of $2.10 to $2.30, including a net tax benefit of $0.22 that Peabody recorded in its second quarter. Excluding that one-time item, the range is $1.88 to $2.08. The consensus estimate called for EPS of $1.79

Peabody's gross margins per ton improved in the U.S. but fell in Australia. At its Midwestern mines, gross margins rose from $13.95 in the third quarter of 2011 to $14.84 this year. In the West, margins rose from $5.01 to $5.54. In Australia, margins fell from $40.25 to $26.08.

Peabody expects demand for seaborne thermal coal to grow by 100 million metric tons in 2012, "with continued increases in 2013," and demand for metallurgical coal to rise by 10% to 15% in 2013, as global economic growth and Chinese demand increase.

The company also noted that demand for coal-fired electricity generation in the United States rose from the low 30% range in the second quarter to 39%. Peabody believes that the vast majority of the decline in U.S. coal demand is now in the past, and the company says that it expects "a rebound in U.S. coal demand in 2013 as higher natural gas prices increase Powder River Basin and Illinois Basin coal consumption."

Peabody's good showing today is likely to put some air under many of the other U.S. coal companies, especially those with assets in the West. That includes Arch Coal Inc. (NYSE: ACI) and Cloud Peak Energy Inc. (NYSE: CLD).

Peabody's shares are up 6.7% in premarket trading this morning at $27.60, in a 52-week range is $18.78 to $47.81. Thomson Reuters had a consensus analyst price target of around $31.62 before today's report.

Paul Ausick