Peabody Says Rail Congestion Limits Coal SalesTim Loh
Peabody Energy Corp., the largest U.S. coal producer by sales, said rail congestion is stopping it from delivering as much as it wants to from mines in the west of the country.
Chairman and Chief Executive Officer Greg Boyce said demand for power-station coal from the Powder River Basin mining region is rising faster than railroads can increase capacity.
“We would have liked to see more improvement than we’ve seen now,” Boyce said today on the St. Louis-based company’s third-quarter earnings call.
The bottlenecks are limiting Peabody’s ability to capitalize on higher demand at U.S. power utilities, which used more coal and less natural gas in September and whose inventories are the lowest since 2005. The improvement in thermal coal contrasts with metallurgical coal, a commodity Peabody also produces and for which prices are at a six-year low after demand from Chinese steelmakers slowed. Peabody reported a loss today and hasn’t posted a quarterly profit in a year.
The Powder River Basin, a mineral-rich swath of land in northern Wyoming and southern Montana, is home to the thickest and cheapest-to-mine seams of coal in the U.S.
Peabody has three sites there that produced a combined 134 million tons of low-sulfur coal in 2013, Scott Durgin, senior vice president of operations, said in an Oct. 7 interview. While it plans to increase output this year, Peabody is limited by the availability of capacity from railroad operators Burlington Northern Santa Fe LLC and Union Pacific Corp., he said.
Peabody’s shares fell 5.2 percent to $10.46 in New York. The company’s implied fourth-quarter earnings forecast was “lackluster at best,” Lucas Pipes, a New York-based analyst for Brean Capital LLC who has a hold recommendation on the stock, said in a phone interview.
Peabody forecast 2014 earnings before interest, taxes, depreciation and amortization and one-time items will be $765 million to $815 million. That implies a range for fourth-quarter Ebitda with a midpoint of $183.7 million, less than the $198.9 million average of 14 analysts’ estimates compiled by Bloomberg.
For the third-quarter, Peabody’s net loss and revenue were better than expected. The loss widened to 56 cents a share from 10 cents a year earlier. Excluding one-time items, it was 59 cents, smaller than the 66-cent average estimate.
Revenue fell 4.2 percent to $1.72 billion, exceeding the $1.64 billion average estimate.
The cost performance in Australia during the period was better than expected, Michael S. Dudas, an analyst at Sterne Agee & Leach Inc., said in a note. Peabody mined 10 million tons in Australia, up from 9 million tons. Volumes were lower at its operations in the U.S. Midwest and West.
Metallurgical coal prices may begin to rise because only about 10 million tons of the 30 million tons of supply cutbacks announced by the industry have so far taken place, Chief Operating Officer Glenn Kellow also said on the call.
Still, the company also predicted U.S. coal consumption will rise by just 15 million tons this year. In July, the company estimated a gain of 30 million to 40 million tons.