Introduction to Peabody Energy
Self-described as the world’s largest private-sector coal company, Peabody Energy (BTU) runs coal operations in the United States and Australia that serve customers in 25 countries. In 2013, its global operations netted a total of $7 billion in revenue with an adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $1.05 billion. As of December 31, 2013, Peabody controls over 8.3 billion tons of coal reserves, of which approximately 7.3 billion tons of thermal-grade coal are located in the United States. Note that all of the coal Peabody Energy produces within the United States is thermal coal.
The entire coal industry has been facing difficulties with new EPA regulations and weaker coal pricing due to a number of factors—like cheaper natural gas and a slowdown in China. So we can understand that Peabody Energy’s share price has been on a steady decline for the past few years. Likewise, many companies within the VanEck Vectors Coal ETF (KOL), like Arch Coal (ACI), Alpha Natural Resources (ANR), and Walter Energy (WLT), have also seen sharp drops in their stock prices over the past few years.
For its recent earnings release, Peabody Energy reported adjusted EPS (earnings per share) of -0.21, narrowly missing analyst estimates of +0.01 EPS. Management attributed this loss to lower quarterly revenues and a lower-than-expected tax benefit. Despite shipping more coal, the decrease in revenue was due to lower average selling prices.
Read on for an in-depth analysis of Peabody Energy’s business operations and relative health compared to its peers in the coal industry.