Peabody Energy Corporation CEO Discusses Q3 2010 Results - Earnings Call Transcript

Peabody Energy Corporation CEO Discusses Q3 2010 Results - Earnings Call Transcript
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Peabody Energy Corporation (

BTU

)

Q3 2010 Earnings Conference Call

October 19, 2010 11 AM ET

Executives

Vic Svec – Senior Vice President, Investor Relations

Greg Boyce – Chairman and Chief Executive Officer

Mike Crews – Executive Vice President and Chief Financial Officer

Rick Navarre – President and Chief Commercial Officer

Analysts

Shneur Gershuni – UBS

Pearce Hammond – Simmons & Company

Michael Dudas – Jefferies

Paul Forward – Stifel Nicolaus

Brian Singer – Goldman Sachs

Brett Levy – Jefferies & Company

Jim Rollyson – Raymond James

John Bridges – J.P. Morgan

Sunil Dapshadar – Sentinel Investments

Curt Woodworth – Macquarie

Natesh Natar – FBR

Brandon Blossman – Tudor, Pickering, Holt

Jeremy Sussman – Brean Murray

Presentation

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Peabody Energy Third Quarter Earnings Release. (Operator Instructions)

Compare to:
Previous Statements by BTU
» Peabody Energy Q2 2010 Earnings Call Transcript
» Peabody Energy Corp Q1 2010 Earnings Conference Call
» Peabody Energy Corp. Q4 2009 Earnings Call Transcript

With that being said, I’ll turn the conference on over to the Senior Vice President, Investor Relations and Corporate Communications, Mr. Vic Svec. Please go ahead.

Vic Svec

Well, thank you, John, and good morning, everyone. Thanks very much for taking part in the conference call for BTU. With us today are Chairman and CEO, Greg Boyce; Executive Vice President and Chief Financial Officer, Mike Crews; and President and Chief Commercial Officer, Rick Navarre.

We do have some forward-looking statements, and they should be considered along with the risk factors that we note at the end of our release, as well as the MD&A section of our filed documents. And we also refer you to peabodyenergy.com for additional information. I’ll now turn the call over to Mike.

Michael Crews

Thanks, Vic. Peabody again delivered exceptional financial results, posting our third quarter in a row of increasing EBITDA. Top line growth and solid operational performance drove margin expansion in all regions. Year-to-date operating cash flows reached a record $884 million, and we are again raising the midpoint of our annual targets.

I’ll begin with a review of our income statement and operational highlights. Our third quarter sales totaled 64 million tons, exceeding last year on higher volumes from our Australia, Trading and Brokerage segments. Revenues were nearly $1.9 billion for the quarter on the combination of higher sales volumes and increased realized prices in each of our operating regions. Australia was again a key driver, with revenues significantly above both last quarter and last year.

Consolidated EBITDA reached $571 million for the quarter or 67% above the prior year on a near tripling of Australia results and improved U.S. performance. Trading and Brokerage also turned in a solid quarter, contributing $44 million.

Let me take you through the performance drivers in more detail, beginning with Australia. During the third quarter, we sold 7.4 million tons in Australia, including 2.4 million tons of met coal and more than 3 million tons of seaborne thermal coal.

Our met coal prices averaged $192 per ton, significantly above both last quarter and last year. Third quarter’s realized prices illustrate the benefits of both business price in line with the quarterly industry benchmark and more than 200,000 tons of carryover volume.

On the seaborne thermal side, our sales price per ton averaged $79 versus $72 last year.

Turning now to costs. The results were better than both last quarter and last year. A higher ratio of thermal volumes, combined with ongoing cost containment, delivered cost of $56 per ton.

Let me take this opportunity to touch on our currency exposure. The Australian dollar appreciated 13% during the third quarter. Fortunately, we are approximately 85% hedged for the remainder of 2010, and we’re currently 75% hedged for 2011, both at approximately $0.80. Our program has been an effective tool for minimizing the EBITDA volatility associated with currency movements.

For the full year, we continue to target Australia cost in a range of $55 to $60 per ton. The combination of higher prices and volumes and costs in line with expectations raised our Australian gross margins to 44%.

Turning now to the U.S. Our quarterly results benefited from higher prices and ongoing cost control. Realized prices in the Midwest were 5% higher than last year, and costs were flat even with the startup costs at Bear Run.

As a result, third quarter margins rose more than $2 per ton, and now average nearly $11 per ton. In the West, our margins continue to exceed $5 per ton, benefiting from higher realized prices in each of our regions, as well as a change in sales mix toward more Southwestern and Colorado volumes.

On the cost side, the effect of that same change of mix was minimized by a 5% improvement in our PRB productivity.

And looking ahead, fourth quarter’s Western cost will reflect a longwall move in Colorado.

Rounding out the EBITDA discussion, Trading and Brokerage delivered $44 million, which exceeded last quarter on a higher volume of physically settled transactions.

Moving on to taxes. Our effective tax rate, excluding currency remeasurement, was 27% and continues to be in line with our full year expectations of 25 to 30%. I’d also note that expense associated with non-controlling interest totaled $12 million this quarter or $0.05 per share. As the profitability of our joint ventures increases, so does the portion that is allocated to our partners.

Excluding the impact of $43 million of non-cash currency remeasurement, our adjusted income from continuing operations totaled more than $280 million with adjusted diluted EPS of $0.99, both more than double last year’s level. As a result of our strong third quarter operational performance, cash flows from operations totaled $427 million, and helped to drive the cash balance to nearly $1.4 billion.

Our third quarter capital expenditures were $126 million. Fourth quarter spending is expected to be the highest of the year, as we begin finalizing Bear Run, ramp up spending on Australian growth projects at Wilpinjong, Burton and Metropolitan and take delivery of production equipment in the U.S. and Australia. For the full year, our CapEx target remains $600 million to $650 million.

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