Earnings Preview: Peabody Q2 Profits Seen Lower

JIM SUHR

ST. LOUIS (AP) ⿿ Peabody Energy Corp., the world's biggest private-sector coal company, is expected to report lower earnings compared to a year ago, when it reports second-quarter results before the stock market opens Tuesday.

WHAT TO WATCH FOR: Analysts may be especially interested in Peabody's performance so far this year because of the challenges coal miners have faced from weaker demand in the global economy. The coal industry and its stocks have been battered as utilities switched to cheap natural gas from coal to generate electricity. Natural gas prices are the lowest in years because of huge supplies from booming production. And the mild winter across much of the nation didn't put much of a dent in the gas surplus.

Prices for thermal coal used by power plants recently reached the lowest levels in two years as inventories have grown, Bank of America Merrill Lynch analysts said earlier this month. They suggested that mining companies should continue to cut back production and delay or cancel expansion plans.

"Although such output curtailments will provide support to prices, it will take time and discipline to work through the glut," the analysts wrote in a research note.

At an analysts conference last month in New York, Peabody CEO Gregory Boyce said China, the world's second-biggest economy and a key Peabody market, has increased coal imports in recent months. Boyce said that growing demand overseas will offset lower coal demand at home. U.S. coal demand will decline 100 million to 120 million tons this year, he said.

Peabody and other international mining companies have been scrambling to tap some of Mongolia's mineral wealth as well; namely the Tavan Tolgoi coal field with estimated reserves of 6.4 billion tons. Peabody has lobbied Washington to support its bid.

In May, Peabody announced it was the winning bidder to lease 402 million tons of ultra-low sulfur coal in Wyoming's South Porcupine reserve area, next to Peabody's North Antelope Rochelle Mine in the Southern Powder River Basin. Peabody now controls 3.3 billion tons of Southern Powder River Basin coal reserves.

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