Peabody Energy's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Peabody Energy (BTU)

Q1 2012 Earnings Call

April 19, 2012 11:00 am ET

Executives

Vic Svec - Senior Vice President of Investor Relations & Corporate Communications

Michael C. Crews - Chief Financial Officer and Executive Vice President

Gregory H. Boyce - Chairman, Chief Executive Officer and Chairman of Executive Committee

Analysts

Michael S. Dudas - Sterne Agee & Leach Inc., Research Division

Shneur Z. Gershuni - UBS Investment Bank, Research Division

James M. Rollyson - Raymond James & Associates, Inc., Research Division

Andre Benjamin - Goldman Sachs Group Inc., Research Division

Brian D. Gamble - Simmons & Company International, Research Division

Brian Yu - Citigroup Inc, Research Division

Justine Fisher - Goldman Sachs Group Inc., Research Division

John D. Bridges - JP Morgan Chase & Co, Research Division

Holly Stewart - Howard Weil Incorporated, Research Division

Lucas Pipes - Brean Murray, Carret & Co., LLC, Research Division

Curtis Woodworth - Nomura Securities Co. Ltd., Research Division

Brandon Blossman - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

David S. Martin - Deutsche Bank AG, Research Division

Richard Garchitorena - Crédit Suisse AG, Research Division

Mark A. Levin - BB&T Capital Markets, Research Division

David Gagliano - Barclays Capital, Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Peabody Energy First Quarter 2012 Earnings Call. [Operator Instructions] As a reminder, today's call is being recorded. I'll now turn the conference over to Mr. Vic Svec, Senior Vice President, Investor Relations and Corporate Communications. Please go ahead.

Vic Svec

Okay. Thank you, John, and good morning, everyone. Thanks again for taking part in the conference call for BTU. And with us today are Chairman and CEO, Greg Boyce; as well as Executive Vice President and Chief Financial Officer, Mike Crews. And we do have some forward-looking statements today. 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. As always, we would also refer you to peabodyenergy.com for some additional information.

And with that, I'll turn the call over to Mike.

Michael C. Crews

Well, thanks, Vic, and good morning, everyone. In the first quarter, Peabody delivered higher revenue, EBITDA, operating profit and cash flows, driven by increased contributions from both U.S. and Australian operations. That's a strong start to 2012 in spite of Australian weather issues and some challenging U.S. market conditions. Let's review the quarterly results, beginning with the income statement.

First quarter revenues rose 17% to $2 billion on increased Australian volumes and higher pricing in both the U.S. and Australia. Rising revenues led to an 18% increase in first quarter EBITDA to $513 million, even with approximately $41 million in weather impacts from Australia flooding that affected costs and reduced sales by approximately 260,000 tons. Impacts were limited to the first quarter, and some of the lower volumes should be recouped in the second quarter.

Diluted earnings per share totaled $0.64 with adjusted diluted earnings per share of $0.67. This came in at the upper end of our original targets given reduced DD&A both from lower volumes and a production mix favoring lower DD&A operations, along with a slightly lower tax rate. Compared with the prior year, earnings per share reflect higher operating profit, net of increased interest expense. We look for DD&A to normalize as we increase volumes from the Australia platform throughout the year.

Our effective tax rate was 25% for the quarter, and we now expect the full year effective tax rate to be in the mid-20% range.

I'll now turn to the additional detail within our supplemental data. Australia sales volumes totaled 6.6 million tons in the quarter, an 18% increase over the prior year due to new and expanded operations. Australian average realized pricing increased 27% to $130 per short ton due to higher realizations on both met and thermal products.

During the quarter, our mixed adjusted average pricing was $188 per short ton for met coal and $100 per short ton for seaborne thermal coal. We shipped 2.9 million tons of met coal and sold 2.6 million tons of seaborne thermal coal in the quarter, with the remaining 1.1 million tons in domestic thermal products.

Our Australia cost of $85 per ton reflect the anticipated change of mix related to our acquired operations, a higher percentage of met coal in the sales mix and a higher -- and higher exchange rates. The weather also impacted costs by $6 per ton in the first quarter, and we continue to target Australian costs to be in the upper 70s per ton range for full year 2012. Overall, Australia margins expanded 20% over the prior year to $45 per ton.

U.S. sales volume was largely in line with the prior year. If you recall, we started the year with a fully priced book of business, and the team did a good job of shipping on those contracts. Realized prices were up over the prior year in both the Western and Midwestern U.S., while overall U.S. cost -- overall cost increases were held at just 6%, leading to a 12% increase in gross margin per ton. Our U.S. margin improvement was notable given the major industry pressures in the quarter.

EBITDA from both Australia and U.S. mining operations increased in the quarter, and Trading and Brokerage EBITDA also rose 5% on growing international operations.

Peabody had another strong quarter for operating cash flow, which rose almost 80% to $395 million. Our ending cash balance for the quarter totaled $952 million. Capital spending was $239 million, and we reduced our 2012 capital spending target by $100 million to $1.1 billion to $1.3 billion to account for the current market environment. This includes sustaining capital of $1.25 to $1.75 per ton of production with most of the remainder associated with the expansion projects in Australia.

Read the rest of this transcript for free on seekingalpha.com

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