Coal producer Peabody Energy Corporation BTU reported a loss of $8.13 per share in third-quarter 2015, narrower than the Zacks Consensus Estimate of a loss of $8.20. Peabody had posted a wider loss of $8.78 in third-quarter 2014. 

Loss from continuing operations in the reported quarter was $8.08 per share.

Revenue

Peabody’s quarterly revenues of $1.42 billion decreased 17.9% year over year but surpassed the Zacks Consensus Estimate of $1.37 billion by 3.6%.

Revenues were adversely impacted by lower sales price per ton and sales volume compared to the prior-year period.

Operational Update

Peabody’s total sales volume in the quarter was 58.4 million tons, down 6.6% year over year.

Operating costs and expenses declined 13.7% year over year to $1.25 billion.

Revenues per ton, in the U.S., decreased 6.8% year over year to $19.79, while revenues per ton in Australia plunged 23.2% to $51.74.

Peabody’s third-quarter 2015 adjusted earnings before interest, tax, depreciation and amortization (“EBITDA”) were $129 million, compared with $216.3 million in the year-ago period.

Financial Update

As of Sep 30, 2015, Peabody had $334.3 million in cash and $348.1 million in inventories compared with $298.0 million in cash and $406.5 million in inventories as of Dec 31, 2014.

Long-term debt as of Sep 30, 2015, was $6.28 billion, up from $5.96 billion as of Dec 31, 2014.

Guidance

For 2015, the company is now targeting total sales of 225–237 million tons (earlier 225–245 million) including 175–185 million tons from the U.S. (earlier 180–190 million tons), 35–36 million tons (earlier 34–36 million) from Australia and 12–16 million tons (earlier 11–19 million) from Trading and Brokerage activities.

The company projects 2015 capital spending of $140–$150 million, down from its earlier projection of $160–$170 million.

Coal Releases

CNX Coal Resources LP CNXC reported adjusted earnings of 62 cents per share in the third quarter of 2015, beating the Zacks Consensus Estimate of 54 cents.

Westmoreland Coal Co. WLB reported a loss of $1.20 per share in the third quarter of 2015, much wider than the Zacks Consensus Estimate of a loss of 63 cents.

CONSOL Energy Inc. CNX reported an adjusted loss of 28 cents per share for the third quarter of 2015, much wider than the Zacks Consensus Estimate of a loss of 2 cents.

Our View

Peabody continues to expect difficult times ahead and as a result has lowered its 2015 sales volume guidance. The company expects U.S. utility coal demand to decline by 100 million tons primarily due to lower natural gas prices.

We believe the new Climate Action Plan also had a role to play here, with more utility operators preferring clean sources to produce electricity to meet the restrictions and target laid down by the new plan. In the U.S. demand for coal is expected to sink further in 2016 from 2015 levels.

The export market is also not looking promising and the total coal export from the U.S. is expected to be 90 million tons lower than 2014 levels. Rising competition from international players and slower–than-expected growth in China are the primary reasons for the expected shortfall.

In spite of the headwinds, Peabody continues to qualify for self-bonding in all relevant states. Recently, the company received approval to continue self-bonding in New Mexico. This affirmation undoubtedly eases some of the financial stress that was building on this coal company.

The company has taken initiatives to lower expenses and also went for a reverse stock split as the share prices were continuously in freefall.

Peabody Energy Corp. currently holds a Zacks Rank #3 (Hold).

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