Peabody Posts Surprise Profit After Coal-Mine Costs Drop

Oct. 17 (Bloomberg) -- Peabody Energy Corp., the largest U.S. coal producer, posted a surprise third-quarter profit after a recovery in domestic prices for coal used to generate electricity and a reduction in mining costs.

Excluding a tax benefit and losses from discontinued operations, earnings were 5 cents a share, Peabody said today in a statement. The average of 24 analysts’ estimates compiled by Bloomberg was for a 4-cent loss. The shares rose 3.9 percent to $18.58 at the close in New York.

The average price in the quarter of thermal coal from the Powder River Basin coal-mining region in Wyoming and Montana -- where Peabody operates the North Antelope Rochelle and Caballo mines -- was 23 percent higher than a year earlier, ICE Futures data show. St. Louis-based Peabody also produces in Australia. The company said it cut costs by 30 percent at some mines there after removing contractors and operating them itself.

Coal “companies are going to need to continue to hunker down on costs if they want to surprise to the upside and that’s what Peabody did this quarter,” Jeremy Sussman, a New York-based analyst at Clarkson Capital Markets who has a hold recommendation on the shares, said in a phone interview.

Peabody, the first major U.S. coal producer to report quarterly earnings, had a third-quarter net loss of $26.1 million, or 10 cents a share, compared with net income of $42.9 million, or 16 cents, a year earlier. Sales dropped to $1.8 billion from $2.06 billion, exceeding the $1.78 billion average of 12 estimates.

Earnings Forecast

The company today forecast full-year 2013 earnings excluding one-time items will be 27 cents to 45 cents a share, compared with the average estimate of 11 cents.

While Powder River Basin prices have recovered in 2013, U.S. thermal coal is still cheaper than it was two years ago. The boom in natural gas output from shale rock has prompted some domestic power utilities to switch generation to gas from coal.

Prices for metallurgical coal, which Peabody also produces, are down year on year amid a supply glut. The global benchmark contract price for seaborne exports on the raw material was set at $145 a ton for the third quarter, down 36 percent from a year earlier, according to data compiled by Bloomberg.

Coal-fired electricity capacity in the U.S. is also facing more regulation. In September, the U.S. Environmental Protection Agency unveiled new rules that require coal plants to capture and store some of the carbon dioxide they emit. The move will push up power prices because the required carbon-capture technology isn’t commercially feasible, Peabody said in a Sept. 20 statement.

To contact the reporter on this story: Gerrit De Vynck in Toronto at gdevynck@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net