Peabody Energy Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021; filed November 5, 2021. Peabody operates coal mines in the U.S. and Australia and reports Seaborne Thermal, Seaborne Metallurgical, Powder River Basin, Other U.S. Thermal, and Corporate and Other segments. Financial figures below are in U.S. dollars.
Financial performance and position
- Q3 revenue: $679.0 million, up 1% from $671.0 million a year earlier. Higher seaborne coal prices and metallurgical volumes were largely offset by $238.4 million of unrealized losses on forecast-sales derivatives.
- Q3 earnings: Operating loss was $43.8 million; net loss attributable to common stockholders was $44.2 million, or $0.38 per diluted share, versus a $67.2 million loss, or $0.69 per share, in Q3 2020. Adjusted EBITDA, a non-GAAP measure, was $289.1 million versus $95.4 million.
- Nine-month results: Revenue was $2.054 billion, down 4%. Net loss attributable to common stockholders was $152.9 million, or $1.46 per diluted share, versus a $1.741 billion loss, or $17.83 per share, in 2020. The prior-year loss included a $1.418 billion impairment charge. Adjusted EBITDA was $472.3 million versus $155.6 million.
- Cash flow: For the first nine months, operating cash flow was negative $18.4 million, investing cash flow was negative $119.7 million, and free cash flow was negative $138.1 million. Cash declined by $122.2 million to $587.0 million.
- Liquidity and debt: Available liquidity was $615.4 million, down from $728.7 million at year-end 2020. Debt carrying value, including finance leases and net of issuance costs, was $1.328 billion, compared with $1.548 billion at year-end. The company reported compliance with debt covenants, including a $125 million minimum-liquidity covenant; covenant-defined liquidity was $452.2 million.
- Margins and segments: Q3 Adjusted EBITDA improved sharply in both seaborne segments: Seaborne Thermal generated $104.4 million and Seaborne Metallurgical $57.4 million. Powder River Basin EBITDA fell to $37.0 million from $78.3 million, amid lower realized pricing and higher costs.
Changes, outlook, and management commentary
- Strong international coal markets supported seaborne pricing, while U.S. coal demand also improved year over year. Total tons sold fell 3% in Q3 and 2% for the first nine months. Management cited rail performance and production issues affecting some U.S. operations.
- The January 2021 refinancing extended significant near-term maturities to December 2024 and provided covenant relief, but introduced higher-cost debt. Q3 and nine-month interest expense rose to $45.5 million and $143.3 million, respectively. Management expected approximately $190 million of 2021 interest expense, including about $45 million noncash.
- Peabody raised $177.2 million from ATM share sales through September 30 and issued shares in certain debt exchanges; additional ATM proceeds and debt exchanges occurred after quarter-end. These actions reduce debt but dilute shareholders. Dividends and share repurchases remain suspended under surety arrangements.
- Management targeted approximately $200 million of 2021 capital expenditures. It expected Shoal Creek production to restart in late Q4 2021 and ramp through Q1 2022; Metropolitan production was also expected to ramp to planned levels in Q4. The filing provides no full-year revenue or earnings guidance.
- Approximately $4.6 billion of revenue was associated with customer contracts with fixed or reasonably estimable prices and volumes; about 42% was expected to be recognized over the following 12 months. Actual revenue may differ, and this estimate excludes many variable-price seaborne contracts.
- Q3 results included a $26.1 million gain from selling the closed Millennium Mine; the Wilkie Creek sale produced a $24.6 million gain in discontinued operations. Both sales involved minimal cash consideration and reduced reclamation liabilities. Peabody retained some royalty rights.
- Key risks include coal-price and demand volatility, climate and environmental regulation, mine operating and labor risks, reclamation and surety collateral needs, and potential impairment of assets. About $1.1 billion of assets were identified as particularly sensitive to pricing, costs, demand, customer concentration, and economic viability; no impairment was recorded at quarter-end. The company also disclosed securities and derivative shareholder litigation relating to North Goonyella; it says it intends to defend the claims.
Most important facts for investors to verify
- Whether the $289.1 million quarterly Adjusted EBITDA is sustainable: it excludes $238.4 million of unrealized forecast-sales derivative losses, which were recognized in GAAP revenue and earnings.
- Whether cash generation, available liquidity, and restricted-subsidiary covenant liquidity remain adequate after collateral requirements, debt service, and surety postings.
- Actual interest costs and debt balances following open-market retirements, mandatory repurchase offers, and post-quarter-end financing activity.
- Production and cost progress at Shoal Creek and Metropolitan, and continuing rail and operating constraints in U.S. segments.
- Coal-price and demand trends, regulatory developments, reclamation obligations, and the outcome of litigation and impairment assessments.
- The extent of further share issuance and resulting dilution; reported common shares outstanding were 122.3 million at September 30 and 127.4 million at November 2, 2021.