Commodities & Metals

What Peabody, CONSOL Earnings Say About the Coal Market

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Peabody Energy Corp. (NYSE: BTU) reported third-quarter results before markets opened Tuesday. The coal miner’s adjusted diluted net loss came to $8.13 per share on revenues of $1.42 billion. In the same period a year ago, Peabody reported a net loss of $8.78 per share on revenues of $1.72 billion. The consensus estimates called for an EPS loss of $8.38 on revenues of $1.4 billion. The net loss per share amounts take into account the one-for-15 reverse split that took effect October 1.

The company lowered its full-year production guidance from a prior range of 225 million to 245 million tons to a new range of 222 million to 237 million tons. Guidance for U.S. revenue per ton was also revised down from a range of $19.95 to $20.40 to a new range of $19.80 to $20.25. U.S. cost guidance fell as well, from a prior range of $14.65 to $15.00 to a new range of $14.50 to $14.85. Peabody also lowered its full-year capex guidance from a range of $160 million to $170 million to a new range of $140 million to $150 million.

President and CEO Glenn Kellow said:

Peabody’s third quarter results reflect a solid operational performance across the portfolio that continues to limit the pricing impacts from unprecedented market conditions. Our mining platform is operating well, and we are balancing our dual financial objectives of optimizing liquidity in response to the prolonged industry downturn whilst keeping a strategic eye on deleveraging.

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In its market outlook for 2016, Peabody spread the doom and gloom:

  • Industry reports estimate that over 80 percent of seaborne metallurgical coal supply is not covering cash costs at current pricing, and Peabody projects 2015 seaborne metallurgical coal supply to decline 15 million [metric tons] tonnes to 295 million tonnes.
  • Peabody expects additional coal production curtailments in response to current prices. In addition, limited capital spending is anticipated to act as a future supply constraint. Industry reports indicate a 70 percent decline in capital investment from the top coal producers from recent highs in 2012.
  • Within U.S. coal markets, Peabody now projects utility coal demand to decline approximately 100 million tons in 2015, primarily due to lower natural gas prices, with coal’s share of U.S. electricity generation expected to be 35 percent.

Energy producer CONSOL Energy Inc. (NYSE: CNX) also reported results Tuesday morning, and the natural gas and coal producer posted an adjusted net loss of $0.28 per share ($64 million). Including the net effects of $248.5 million in benefits and $10.7 million in charges, GAAP earnings per share amounted to $0.52 ($119 million). Analysts were expecting a net loss per share of $0.05 on revenues of $723.1 million. The company posted revenues of $813.94 million, of which just $403.6 million represented coal sales and $202 million represented sales of natural gas, natural gas liquids and oil.

CONSOL President and CEO Nicholas J. Deluliis said:

During the quarter, we beat production targets, locked in a significant percentage of our revenues for 2016 with additional gas hedges and multi-year coal contracts, significantly reduced operating costs, corporate overhead, and legacy liabilities, and accelerated our asset sale monetization program. These steps provide increased confidence in our ability to achieve our free cash flow base plan that we highlighted during our second quarter 2015 earnings call, and we are hard at work with multiple processes underway to monetize additional assets this year and into 2016. Expected proceeds will go towards reducing debt to help accelerate the separation of our Coal and E&P Divisions.

Peabody’s shares traded down about 15% Tuesday morning, at $18.40 in a 52-week range of $14.85 to $179.40. The consensus price target on the stock is $35.53.

CONSOL’s stock traded down more than 17% at $7.33, after posting a new 52-week low of $7.15. The 52-week high is $42.26. The consensus price target on the stock is $21.71.

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