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TheStreet Open House

Earnings Preview: Peabody Q3 Profits Seen Lower

Stocks in this article: BTU

JIM SUHR

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

WHAT TO WATCH FOR: Analysts likely will look for whether Peabody again lowers its earnings or production outlooks, as the industry continues to grapple with weakened demand in the global economy and more utilities using cheap natural gas instead of coal to generate electricity.

In July, while announcing Peabody's lower second-quarter profits, chairman and chief executive Gregory Boyce called the market "choppy," noting "the industry experienced significant headwinds" as declining global thermal coal prices and low natural gas prices pushed up coal stockpiles at utilities.

Peabody at that time pared its 2012 coal sales expectations by 5 million tons from its projection three months earlier â¿¿ to between 230 million and 250 million tons â¿¿ and forecast lower-than-expected earnings for the third quarter.

"Peabody is weathering the macroeconomic storms well," Boyce told analysts then. Yet "Peabody is guarded in our near-term view of global market fundamentals."

"U.S. coal markets have shown some positive signals, but significant recovery is not yet at hand," Boyce added, believing U.S. coal use will rebound next year as natural gas prices rise. Those prices have rebounded lately. Earlier this month they spiked nearly 80 percent since hitting a 10-year low of $1.91 per 1,000 cubic feet in April.

Some analysts don't expect the third-quarter showings by U.S. coal producers to be much better than the last quarter. Stifel Nicolaus analyst Paul Forward wrote in a research note Friday "we expect most firms to disappoint" either in their July-September earnings or their outlook for this year's final three months. He said the latest results should reflect rapid weakening in the market for metallurgical coal used in making steel.

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