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Peabody Raises Forecast After Demand Gains Boost Second-Quarter Earnings

Peabody Energy Corp., the largest U.S. coal producer, raised the lower end of its earnings forecast after beating analysts’ estimates for the second- quarter on increased demand in China for Australian coal.

Net income swelled to $206.2 million, or 76 cents a share, from $79.2 million, or 29 cents, a year earlier, St. Louis-based Peabody said today in a statement. The company was expected to earn 66 cents a share, according to the median of nine analyst estimates compiled by Bloomberg. Sales rose 24 percent to $1.66 billion from $1.34 billion.

Peabody lifted its full-year targets for earnings before interest, taxes, depreciation and amortization to between $1.7 billion and $1.9 billion and for adjusted earnings per share of $2.60 to $3.15. Earlier this year, the company forecast Ebidta of $1.6 billion to $1.9 billion with adjusted earnings per share of $2.45 and $3.15. Peabody also said it expects the second half to be stronger than the first.

“We are modeling the second half to be stronger than the first half both for Peabody and the market,” said Jeremy Sussman, an analyst at Brean Murray Carret & Co. in New York. “Frankly, in this market it’s tough to fault anyone for an earnings beat or for raising the low end of guidance.”

Peabody rose 75 cents, or 1.8 percent, to $43.06 in New York Stock Exchange composite trading. The shares have fallen 4.8 percent this year.

Adjustments Unlikely

The revised forecast isn’t likely to prompt analysts to adjust forecasts, according to Meredith Bandy, an analyst at BMO Capital Markets in Denver.

“The Street was already at the higher end of guidance, so raising the lower end really didn’t do anything,” she said today in a telephone interview. “ The upside is going to be on the Australian market.”

Ebidta for the third-quarter will be $475 million to $550 million with adjusted earnings per share of 75 cents to $1, Peabody said.

The company sold 6.4 million tons of coal out of Australia, up 28 percent from a year ago. Peabody received $92.69 a ton, 49 percent higher than a year earlier.

Peabody sold 2.2 million tons of metallurgical coal during the quarter, up from 1 million tons a year earlier, when demand for the steelmaking fuel sank because of the most severe recession since the 1930s.

Billiton Contract

BHP Billiton Ltd., the largest coking coal exporter, signed a contract with JFE Holding Inc.’s steel unit to supply metallurgical coal at $200 per metric ton for the second- quarter, up 55 percent from the $129 a ton agreed for the year that ended March 31. The contract is considered the industry benchmark.

The contract, which was changed to settle on a quarterly basis this year, rose 12.5 percent to $225 a ton for the July quarter, the second-highest ever behind the $305 negotiated in 2008.

“They delivered yet again in Australia and next quarter they will be able to do the same because of the uptick in pricing,” Sussman said.

Peabody said it expects China imports to hit a record this year amid mine consolidation, logistical constraints, growing consumption and demand for steelmaking coal. The country surpassed the U.S. as the world’s largest energy consumer, according to the International Energy Agency.

‘Justifiably Bullish’

Chief Executive Officer Gregory Boyce, 55, on a conference call today with analysts and investors, said those factors make him “justifiably bullish” on the global demand for coal.

India’s coal imports have surged 22 percent so far this year and Peabody estimates that the country will increase imports as much as 20 percent from a year ago.

The coal producer started operations at the Bear Run mine in Sullivan County, Indiana, during the quarter. The company estimates that it will produce about 3 million tons of coal this year, increasing to 8 million tons by 2012.

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 because of increased demand in the Asia Pacific region.

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

Peabody may start its School Creek operation in Campbell County, Wyoming, if demand for thermal coal improves and it is considering doing so next year, Boyce said.

The company is still “very acquisitive” particularly for operations that serve the seaborne coal market, Boyce said.

He abandoned his takeover attempt for Macarthur Coal Ltd. earlier this year after the Australian government proposed a 40 percent tax on mining profits.

Arch Coal Inc., also based in St. Louis, is the second- biggest U.S. coal producer, followed by Alpha Natural Resources Inc., in Abingdon, Virginia.

(Peabody held a conference call with analysts and investors to discuss results at 11 a.m. in New York. To listen, go to the company’s Web site at http://www.peabodyenergy.com.)

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

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