Peabody Energy Corporation — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; unaudited. Peabody produces and markets thermal and metallurgical coal through U.S. and Australian mining operations.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1,321.9 million | $723.4 million | $2,013.3 million | $1,374.7 million |
| Operating profit (loss) | $449.3 million | $(4.2) million | $378.7 million | $(45.0) million |
| Net income (loss) attributable to common stockholders | $409.5 million | $(28.6) million | $290.0 million | $(108.7) million |
| Diluted EPS attributable to common stockholders | $2.54 | $(0.28) | $1.93 | $(1.09) |
| Adjusted EBITDA (non-GAAP) | $577.8 million | $122.1 million | $905.3 million | $183.2 million |
- Cash flow: For the first half, operating cash flow was $9.4 million, investing cash flow was $94.5 million, and financing cash flow was $75.1 million. Peabody’s non-GAAP Free Cash Flow, defined as operating plus investing cash flow, was $103.9 million, versus $(105.4) million a year earlier. Cash, cash equivalents and restricted cash totaled $1,133.3 million at June 30.
- Margins and volumes: Q2 Adjusted EBITDA margin per ton was $43.52 for seaborne thermal, $185.65 for seaborne metallurgical, $(0.11) for Powder River Basin (PRB), and $14.15 for other U.S. thermal. Total tons sold fell 13% to 28.6 million. Higher realized prices drove results, while costs rose across segments.
- Balance sheet: Cash and cash equivalents were $1,120.7 million; debt carrying value was $1,046.9 million, including $177.7 million classified as current. Debt at par was $1,075.4 million. Total liquidity was $1,134.2 million, including $13.5 million available under the receivables securitization program. The company reported compliance with debt covenants.
- Interest and tax: First-half interest expense was $77.0 million, down from $97.8 million. The first-half income tax provision was $10.3 million; management expected to use substantial U.S. and Australian net operating losses in 2022.
Changes versus prior comparable periods
- Q2 revenue increased 83%; first-half revenue rose 46%. Higher realized coal prices were the main driver, particularly in seaborne metallurgical coal. Q2 and first-half results from continuing operations improved by $434.3 million and $392.2 million, respectively.
- First-half Adjusted EBITDA increased by $722.1 million. Seaborne thermal and metallurgical mining benefited substantially from higher prices; metallurgical mining moved from a loss to strong positive EBITDA.
- PRB performance weakened: Q2 segment Adjusted EBITDA was a $2.0 million loss versus $45.5 million income a year earlier. Rail performance reduced volumes, while inflation, commodity costs and elevated overburden removal pressured costs.
- First-half results included $325.5 million of unrealized losses on coal derivatives related to forecasted sales, compared with $25.6 million in the prior-year period. These mark-to-market losses materially reduced reported revenue and earnings but were excluded from Adjusted EBITDA.
- Debt carrying value declined from $1,137.8 million at December 31, 2021, alongside refinancing, repayments and repurchases. The company issued $320 million of 3.25% convertible notes due 2028 and used proceeds and cash to retire nearer-term debt. First-half share issuance generated $222.0 million net proceeds.
Outlook, management commentary, risks and unusual items
- Market outlook: Management described seaborne thermal prices as elevated amid tight supply and energy-security concerns, but markets as turbulent. Metallurgical coal demand faced weaker steel-market conditions, partly offset by buyers seeking alternatives to Russian supply. No specific company-wide earnings or production guidance is provided in the supplied filing text.
- Operating pressures: Inflation in materials, services, repairs and labor, wet weather, COVID-related staffing shortages, mine transitions and PRB rail issues affected costs or output. Total first-half tons sold declined 7%.
- Margin and derivative risk: Peabody posted $544.2 million of aggregate margin cash at June 30, including $427.4 million variation margin and $116.8 million initial margin. It reported $529.2 million posted on July 29. A $100-per-ton change in the Newcastle forward curve was estimated to change variation-margin requirements by approximately $92 million. The company had a $150 million unsecured revolving facility for liquidity support, but reported no availability under it at June 30 and gave notice of termination effective August 4, 2022.
- Debt transactions after quarter-end: Peabody completed a $97.5 million repurchase of 2024 Co-Issuer Notes on July 25. Additional offers to repurchase Co-Issuer Term Loans and notes were pending or open after June 30. The company also had a required $65.1 million prepayment offer based on Wilpinjong cash flow; loan holders declined their portion and the notes offer was due to expire August 29.
- Other unusual items: First-half losses on early debt extinguishment were $25.8 million. Middlemount equity-method income was $95.2 million for the first half, and Peabody received $143.2 million in cash from Middlemount. First-half cash flow also reflected $414.1 million used to meet derivative margin requirements. A securities class-action settlement for $4.6 million, payable by insurers and subject to court approval, was agreed on August 2.
- Regulatory and strategic risks: Queensland introduced higher coal royalty tiers effective July 1, 2022; Peabody said it was considering challenges with other producers. The filing also discusses proposed Australian environmental and labor reforms, U.S. emissions and air-quality regulation, climate-transition and physical risks, coal-price volatility, reclamation bonding, and dependence on customer contracts. The company had $1,453.5 million of surety bonds and $475.1 million of letters of credit outstanding; it warned that additional collateral needs could reduce liquidity.
- Capital returns and pensions: Dividends and share repurchases remained suspended, with surety and debt restrictions limiting them. A qualified pension plan purchased an approximately $500 million group annuity contract funded by plan assets; a plan termination process was set to take effect July 31, 2022.
Important facts for investors to verify
- How realized coal prices, sales volumes, inflation and rail performance affect subsequent segment margins and cash generation.
- The cash and earnings effects of derivative settlements, future mark-to-market movements, and ongoing margin and reclamation-collateral requirements.
- The completion and funding of post-quarter debt repurchases and offers, and the company’s resulting debt maturities, liquidity and covenant headroom.
- The implementation and financial impact of Queensland’s new royalty tiers and other pending regulatory or policy changes.
- The status and final court approval of the securities class-action settlement, and developments in stayed derivative litigation and legacy Patriot-related liabilities.