Peabody Energy's 1Q profit falls, shares slip

Peabody Energy Corp. said Thursday its first-quarter profit fell 21 percent, reflecting lower coal prices and higher provisions for taxes.

But the results beat Wall Street estimates and the St. Louis company said it expects improved sales later in the year as it aggressively pushes to satisfy a surging appetite from China and other Asian markets for higher-margin coal used in making steel.

Much of that so-called metallurgical or coking coal comes from Peabody's Australia operations. The miner wants to expand its operations in that variety of black ore through acquisitions including its recently sweetened $3.8 billion bid for Australia's Macarthur Coal Ltd., a major producer of pulverized coal used by steelmakers.

Peabody also is in preliminary talks with Coal India - the world's biggest coal company - regarding long-term coal supplies and other possible cooperative ventures.

Gregory Boyce, Peabody's chairman and chief executive, declined to detail during a conference call with analysts the potential deals, given that talks were pending. But reasons for Peabody's interest is obvious: the Chinese and Indian economies have rebounded from the recession faster than other parts of the globe, with both countries thirsty for imported metallurgical coal to make steel for cars, bridges and appliances.

Jefferies & Co. analyst Michael Dudas told clients in a research note that Peabody's first-quarter performance appeared strong, and that the company was poised to benefit from robust Chinese and Indian demand for steel-making coal and the variety used by power plants to create electricity.

Peabody said global steel production is expected to rise more than 10 percent this year, and global seaborne metallurgical coal demand is expected to spike by more than 50 million tons, prompting Peabody and other coal producers to ratchet up their output to benefit from rising prices.

"We believe India will be the fastest-growing importer of coal through 2020, so it is quite simply a market we want to supply," Boyce told analysts. "The demand in the Pacific Rim is so strong."

Peabody, which fuels roughly one-tenth of all U.S. electricity generation and more than 2 percent worldwide, said its earnings attributable to common shareholders fell to $133.7 million, or 50 cents per share, in the January-March period, down from $170 million, or 63 cents a share, a year earlier.

Analysts surveyed by Thomson Reuters expected earnings of 41 cents a share excluding one-time items.

Revenue rose 4 percent to $1.52 billion, matching analysts estimates, from $1.45 billion a year ago.

Peabody's shares slipped 17 cents to close at $46.43.

The company said it still forecasts sales this year of 240 million to 260 million tons, including U.S. sales of 185 million to 195 million tons and higher Australian sales of 27 million to 29 million tons. Peabody wants to boost its Australian production to as much as 40 million tons in 2014.

On the regulatory front, Boyce also echoed what his counterpart at rival Arch Coal Inc. told analysts Monday: that this month's blast that killed 29 miners at Massey Energy's Upper Big Branch mine in West Virginia could spawn tighter safety monitoring, perhaps ultimately lowering coal production.

"I think we can all assume that there will be changes to both regulation as well as to the oversight of mines as we have seen in the past" with mining tragedies, particularly those involving underground operations, Boyce told analysts. "It's an evolution that we plan on managing through."