Peabody Energy Corporation — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. Financial statements are unaudited. Peabody is a coal producer and trader operating primarily in the U.S. and Australia. Results include Macarthur Coal, acquired in late 2011, from the acquisition date.
Financial performance and position
| Metric | Q1 2012 | Q1 2011 or prior date |
|---|---|---|
| Total revenue | $2,038.6 million | $1,743.1 million; up 17.0% |
| Operating profit | $350.2 million | $314.3 million |
| Income from continuing operations, net of tax | $182.3 million | $194.6 million |
| Net income attributable to common stockholders | $172.7 million; diluted EPS $0.63 | $176.5 million; diluted EPS $0.65 |
| Adjusted EBITDA | $512.6 million | $435.3 million |
| Cash from operating activities | $395.5 million | $220.6 million |
| Cash and cash equivalents | $952.4 million | $799.1 million at December 31, 2011 |
| Total debt | $6,653.0 million | $6,657.5 million at December 31, 2011 |
| Available liquidity | $2.4 billion | — |
Investing cash flow was an outflow of $203.1 million, including $235.3 million of additions to property, plant and equipment; financing cash flow was an outflow of $39.1 million. The declared dividend was $0.085 per share. Management reported compliance with debt covenants.
Changes and operating drivers
- Revenue rose primarily on Macarthur contributions, higher Australian metallurgical and thermal coal prices, and higher U.S. realized prices. Australian Mining revenue increased 47.6% to $854.1 million; Western U.S. Mining revenue increased 8.1% to $761.0 million.
- Total tons sold increased 0.8% to 61.7 million. Australian Mining sales rose 17.9% to 6.6 million tons; U.S. volumes softened amid mild weather, coal-to-gas switching and weak economic growth.
- Total segment Adjusted EBITDA increased 21.9% to $641.0 million, while Corporate and Other Adjusted EBITDA deteriorated to negative $128.4 million from negative $90.4 million. Consolidated Adjusted EBITDA was $512.6 million.
- Despite stronger Adjusted EBITDA, continuing-operations net income fell $12.3 million. Interest expense doubled to $102.0 million and depreciation, depletion and amortization rose to $144.9 million, largely reflecting Macarthur acquisition-related debt and assets.
- Net income was nearly flat year over year, partly because the discontinued-operations loss narrowed to $4.0 million from $15.9 million.
Outlook, risks and contingencies
- Management reduced its 2012 U.S. sales-volume target to 185–195 million tons; those volumes were fully committed and priced as of the filing. It cited declining U.S. coal generation and expected coal-to-gas switching.
- 2012 targets include approximately 14–15 million tons of metallurgical coal sales, 12–13 million tons of Australian thermal exports, and 33–36 million tons of total Australian production. Second-quarter metallurgical coal settlements were in line with $210 per tonne for high-quality hard coking coal and $152 per tonne for low-volatile PCI coal; much of the remaining 2012 metallurgical output was unpriced.
- Macarthur was expected to contribute less than $100 million of EBITDA in 2012, reflecting overburden work at Coppabella and major repairs at Coppabella and Moorvale. Management expected this work to support better productivity and costs in 2013.
- 2012 capital expenditures were forecast at $1.1–$1.3 billion, including $800–$950 million for growth projects. Management said liquidity and operating cash flow should meet anticipated capital needs over the next 12 months and foreseeable future.
- Key risks include coal demand and price volatility, natural-gas competition, production/geology and transportation constraints, input-cost inflation, acquisition integration, foreign exchange, regulatory changes and environmental requirements. Australia’s minerals resource rent tax and carbon pricing framework were scheduled to take effect July 1, 2012; management estimated an initial average fugitive-emissions cost of about A$2 per ton, subject to operating mix and other factors.
- Contingencies include a Gulf Power judgment of $20.5 million plus $6.9 million prejudgment interest, which Peabody appealed and for which it recorded no liability; and Australian Monto litigation seeking at least A$1,193.2 million, whose loss amount management said could not be reasonably estimated. Environmental cleanup liabilities were $48.9 million. Peabody had received $20.0 million of $52.6 million held by MF Global UK; the remaining claim was included in receivables, with no reserve estimable based on available information.
- Off-balance-sheet instruments and obligations totaled $2.204 billion, including $931.5 million of self-bonding for reclamation. The filing states management did not expect material losses from guarantees and similar arrangements.
Important facts for investors to verify
- Whether U.S. demand weakness, coal-to-gas switching and lower planned volumes persist, and how contract adjustments affect realizations and costs.
- Macarthur’s production recovery, repair and overburden costs, and progress toward the stated 2013 improvement expectations.
- Actual 2012 capital spending, liquidity and debt service, including renewal of the receivables securitization program, which was due to extend to May 2012.
- Realized Australian coal prices, currency effects, and the net costs or benefits of Australia’s new resource rent and carbon pricing measures.
- Developments in the Gulf Power appeal, Monto claims, environmental matters and collection of the remaining MF Global UK funds.