Earnings Preview: Peabody 4Q Profits Seen Lower

By JIM SUHR

ST. LOUIS (AP) ⿿ 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 fourth-quarter results before the stock market opens Tuesday.

WHAT TO WATCH FOR: U.S. coal producers like Peabody struggled last year as historically low natural gas prices prompted many utilities to use it instead of coal for fuel, though Peabody said recently that electricity providers increasingly are switching back to coal.

Last month, Peabody announced that it expects a drop in coal prices and higher costs to result in "trough" earnings for the first-quarter, but its results should improve as this year progresses. The company forecast its first-quarter Australian costs to rise about 10 percent, while pricing of metallurgical coal used to make steel is expected to be down from levels of 2012's final three months, crimped by slower global demand for steel.

St. Louis-based Peabody expects its U.S. coal sales to fall by about 2 million tons as a result of lower market demand, with U.S. coal pricing expected to be down about 5 percent.

Underscoring the industry's headwinds, Goldman Sachs analyst Andre Benjamin, in a bearish research note last month, said he does not expect coal prices to return to more normal prices until the second half of 2014, instead of this year's final three months as previously expected.

Muddying matters is uncertainty about what lies in store for the industry during in the second term of President Barack Obama, who during his recent inaugural address said climate change was a priority. A series of environmental regulations proposed by the Obama administration could reduce the nation's coal use in addition to the pullbacks tied to competition from natural gas.

On the legislative front, federal lawmakers this month asked the Department of Interior to review by Feb. 4 whether companies are shortchanging federal and state governments on millions of dollars in royalties on coal exported to foreign markets. That move comes as U.S. coal exports hit record levels last year ⿿ an estimated 124 million tons, according to Department of Energy projections.

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