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Peabody Energy Profit Falls 21% on Sales Decline, Lower Australian Prices

Peabody Energy Corp., the largest U.S. coal producer, said first-quarter profit fell 21 percent on reduced sales and lower prices in Australia.

Net income slid to $133.7 million, or 50 cents a share, from $170 million, or 63 cents, a year earlier, St. Louis-based Peabody said today in a statement. The company was expected to earn 41.1 cents a share, according to the average of seven analyst estimates compiled by Bloomberg. Sales rose 4.3 percent to $1.52 billion.

Chief Executive Officer Gregory Boyce, 55, shipped about 2 percent less coal than a year earlier and fetched lower prices from Australia. The company was forced to temporarily halt production at its Wilkie Creek mine in that country in March.

“There was a lot of weather issues out in Australia this quarter,” said Jeremy Sussman, an analyst at Brean Murray Carret & Co. in New York. “Peabody wouldn’t be immune to that.”

Peabody fell 32 cents, or 0.7 percent, to $46.28 at 12:05 p.m. in New York Stock Exchange composite trading. The shares have gained 85 percent in the past year.

Peabody’s Australian mining revenue dropped 12 percent to $71.97 a ton from $81.95 a year earlier. The company’s U.S. sales increased 3.9 percent to average $20.63 a ton.

The company said it expects higher prices for the rest of 2010 in Australia than the $122 per ton it averaged during the quarter for its metallurgical coal and the $66 per ton for its thermal coal.

“The Pacific met and thermal markets are outstanding,” Boyce said today on a conference call with analysts and investors. “We obviously are poised to increase our volumes and pricing” throughout the year.

Asia Demand

Metallurgical coal is used to produce steel, while the thermal form of the fuel is consumed by utilities to generate electricity. Metallurgical coal prices have surged on the recovering global economy and higher demand from China and India.

BHP Billiton Ltd., the world’s largest coking-coal exporter, won a 55 percent increase from Tokyo-based JFE Holdings Inc.’s steel unit last month. JFE will pay $200 a metric ton for a three-month contract that started this month. That compares with $129 a ton for the year ended March 31.

Peabody said in January that it planned to sell 240 million to 260 million tons of coal this year, compared with 243.6 million in 2009, on increased demand in the Asia Pacific region.

Sales Outlook

The company said it expects to sell 27 million to 29 million tons of coal out of Australia, up from an earlier forecast for 26 million to 28 million tons.

Earnings before interest, taxes, depreciation and amortization for the second-quarter will be $350 million to $425 million with adjusted earnings per share of 50 cents to 65 cents, Peabody said.

The mining company said it plans to begin output at its Bear Run mine in Sullivan County, Indiana, next month and that it will produce about 3 million tons of coal annually. Output will gradually increase to 8 million tons “over time.”

Peabody said it’s in discussions with companies to ship some of its coal from Wyoming’s Powder River Basin to India. The basin holds the largest and least expensive reserves of coal in the U.S.

Government Oversight

Boyce said he expects more government scrutiny on the industry after the April 5 disaster at Massey Energy Co.’s Upper Big Branch mine in West Virginia, the worst coal mining accident in 40 years.

“We can all assume there will be changes to regulations as well as to the oversight of mines,” Boyce said.

Sussman said investors are interested in the status of Peabody’s A$4.1 billion ($3.8 billion) bid for Macarthur Coal Ltd., and how it would integrate the company into its operation. Macarthur said last week that it would begin discussions with Peabody.

Boyce said that he would have expected to be “in due diligence at this time” with Macarthur “but that’s not” the case. He said Peabody is still in discussions with the company.

To contact the reporters on this story: Mario Parker in Chicago at mparker22@bloomberg.net;

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