Peabody’s 2Q profits up on robust pricing, Asian demand; outlook positive for 2010’s 2nd half

Peabody’s 2Q profits soar with Asian demand strong

ST. LOUIS — Peabody Energy’s second-quarter profit more than doubled, the miner said Tuesday, easily topping most expectations thanks to strong demand for the high-margin Australian coal that Asia needs to feed its booming steel industry.

The world’s biggest private-sector coal producer also offered a rosy outlook for the rest of this year, saying it would capitalize on rising volumes and strong pricing.

Peabody expects the second half of the year will top the first, and the St. Louis company raised the low end of its annual earnings estimate, citing global demand.

“Our financial position is better than ever,” said Chairman and CEO Gregory Boyce, touting China’s hunger for coal. “The bottom line, we are justifiably bullish in the near-term and feel stronger than ever about the long-term supercycle for coal driven by Asian-Pacific growth.”

Peabody, which fuels roughly one-tenth of all U.S. electricity generation and more than 2 percent worldwide, said its net income rose to $206.2 million, or 76 cents per share, in the April-June period. That’s up from $79.2 million, or 29 cents a share, a year earlier.

Analysts polled by Thomson Reuters expected, on average, that Peabody would earn 63 cents per share.

Revenue rose 24 percent to $1.66 billion, in line with analyst estimates, on the strength of a $288.4 million jump in revenue from Australia. Peabody’s total revenue during the same period last year was $1.33 billion.

Like other miners, Peabody has pushed aggressively to broaden production in Australia — home to sizable reserves of metallurgical coal that is used to make steel.

It recently bid $3.4 billion for Australia’s Macarthur Coal Ltd., a major producer of the pulverized coal coveted by steelmakers. While Macarthur’s board spurned the offer, Peabody said it’s still shopping.

Peabody’s earnings are closely watched because the company usually is the first of the sector’s big players to report each quarter, giving analysts a snapshot of the industry’s health, including its outlook for demand for thermal coal used in electricity generation.

And the industry’s fate continues to point to China.

On Tuesday, the International Energy Agency said China had overtaken the United States as the world’s top energy consumer, a position that the United States has held for a century.

China immediately called the report unreliable, but the nation’s economic growth and the energy required to fuel that growth has been astonishing.

The IEA report suggested China’s energy consumption has more than doubled in less than a decade, driven by manufacturing and steel production. More Chinese consumers are wired to the grid, able to afford air conditioners and buying electronics that in past have been out of economic reach.

“All of this translates into China’s coal demand growing at a rapid clip and coal imports continuing at a record pace,” Boyce said.

Peabody forecasts sales this year of 240 million to 260 million tons, including U.S. production of 185 million to 195 million tons and Australia production of 27 million to 29 million tons.

Peabody boosted the low end of its earnings-per-share outlook for the year to $2.60 from $2.45, excluding currency remeasurements, leaving the high-end guidance at $3.15. Analysts are expecting $3.10.

Stifel Nicolaus & Co analyst Paul Forward said he’s found Peabody’s earnings guidance “in recent years to be conservative, and would view the high end of its guided ranges as being reachable.”

Shares of Peabody Energy Corp. rose 75 cents to close at $43.06.