Peabody Energy Corporation (NYSE: BTU) — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. Amounts are in U.S. dollars unless noted.
Business context
Peabody produces and markets thermal and metallurgical coal through five reporting segments: Seaborne Thermal, Seaborne Metallurgical, Powder River Basin, Other U.S. Thermal, and Corporate and Other.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $1,268.8 million | $1,321.9 million | $2,632.8 million | $2,013.3 million |
| Operating profit | $260.8 million | $449.3 million | $665.3 million | $378.7 million |
| Income from continuing operations, net of tax | $204.1 million | $411.3 million | $488.2 million | $291.5 million |
| Net income attributable to common stockholders | $179.2 million | $409.5 million | $447.7 million | $290.0 million |
| Diluted EPS attributable to common stockholders | $1.15 | $2.54 | $2.83 | $1.93 |
| Adjusted EBITDA (non-GAAP) | $358.2 million | $577.8 million | $748.8 million | $905.3 million |
Q2 revenue fell 4% year over year, while common-stockholder net income declined 56%. First-half revenue rose 31% and common-stockholder net income rose 54%; first-half comparisons were substantially affected by coal-sale derivative mark-to-market gains in 2023 versus losses in 2022. Adjusted EBITDA declined 38% in Q2 and 17% in the first half. The filing does not provide a single consolidated operating-margin percentage.
Q2 weakness was led by Seaborne Metallurgical: revenue fell 30% and segment Adjusted EBITDA fell 66%, principally reflecting a 42% decline in realized revenue per ton. Seaborne Thermal and Powder River Basin segment EBITDA improved. First-half income also benefited from lower interest expense, while the tax provision increased to $192.2 million from $10.3 million.
Cash flow, balance sheet and capital returns
- First-half operating cash flow was $739.7 million, versus $9.4 million a year earlier. Management-defined Available Free Cash Flow was $636.6 million.
- First-half investing cash flow was a $120.0 million outflow and financing cash flow was a $225.4 million outflow. Financing included $173.0 million of share repurchases and $10.8 million of dividends paid.
- At June 30, cash and cash equivalents were $1,080.5 million, down from $1,307.3 million at year-end. Restricted cash and collateral rose to $925.4 million from $187.4 million; therefore, reported cash and restricted balances should not be treated as fully available liquidity.
- Available liquidity was $1,115.3 million, comprising cash of $1,080.5 million and $34.8 million of accounts-receivable securitization availability. There was no availability under the terminated credit/letter-of-credit facility.
- Debt carrying value was $334.5 million, including $320.0 million principal of 3.25% unsecured convertible notes due 2028 and finance leases. The company reported covenant compliance.
- Peabody repurchased about 8.9 million shares for $184.2 million in Q2 and declared a $0.075-per-share dividend. After quarter-end it repurchased a further 3.1 million shares for $67.0 million.
Outlook, commentary and risks
- Management estimated 2023 Seaborne Thermal sales of 15–16 million tons, including 9.5–10.5 million export tons and 5.5 million domestic tons; Seaborne Metallurgical sales were estimated at 6.5–7.5 million tons. About 109 million tons of U.S. thermal coal were priced and committed for 2023 as of June 30. These are estimates, not guarantees.
- The Board authorized a $1.0 billion share-repurchase program and Peabody said it anticipates a regular quarterly dividend of $0.075 per share. Shareholder returns remain discretionary and subject to liquidity requirements and business conditions.
- An April surety-agreement amendment set a maximum aggregate collateral amount of $721.8 million, removed prior restrictions on dividends and repurchases subject to tests, and extended the agreement through 2026. The company must meet a quarterly minimum-liquidity test and a maximum net-leverage ratio of 1.5 to 1.0.
- Shoal Creek’s March fire led to a $28.7 million provision; localized sealing was completed and development production resumed in a new area. A June tornado temporarily suspended North Antelope Rochelle Mine operations; it resumed two days later. Peabody recorded a $5.0 million provision and said further repair costs may arise.
- Market risks include volatile coal prices, weaker metallurgical pricing, lower U.S. coal demand amid low natural-gas prices and rising inventories, inflation and operating-cost pressure, and disruptions related to the Russia–Ukraine conflict. Proposed U.S. emissions and other environmental rules, and Australian emissions policy, could affect coal demand, costs, or operations.
- Other matters to monitor include a New South Wales investigation of stormwater discharges at Metropolitan Mine, a newly served Oregon climate-change lawsuit, and the recorded $80.0 million liability for certain Patriot-related black-lung claims. The Puerto Rico climate lawsuit was dismissed without prejudice as to Peabody.
Important facts for investors to verify
- How much first-half earnings and revenue depended on derivative mark-to-market gains, and how results compare excluding those effects.
- Whether metallurgical coal prices and Shoal Creek production recover, and whether the disclosed 2023 sales-volume estimates are achieved.
- Accessible liquidity after accounting for restricted collateral, future reclamation requirements, and the surety agreement’s liquidity and leverage tests.
- Additional costs or production impacts from the Shoal Creek fire, NARM tornado, inflation, and regulatory developments.
- The sustainability of dividends and repurchases relative to cash generation, capital commitments, and market conditions.