Positive free cash flows stop debt-level increase
Peabody Energy Corporation (BTU) reported debt of $6 billion as of September 30, 2014. This is similar to the debt level seen at the end of 2Q 2014. Much of this debt was added in 2011 to fund acquisitions made when coal prices were high.
Peabody Energy’s debt maturities are fairly spread out, as seen in the below chart. This is not the case for the company’s peers (KOL), Alpha Natural Resources, Inc. (ANR) and Walter Energy, Inc. (WLT). These two companies have substantial debt maturing in 2018–19. Companies such as Cloud Peak Energy, Inc. (CLD), which remained prudent during the boom, have better balance sheets.
The company had cash and bank balances of $467 million as of September 30, 2014, compared to $498 million at the end of 2Q 2014. The company’s total liquidity was $2.3 billion as of September 30, 2014, including cash, cash equivalents, and available lines of credit.
With no large maturity in sight over the short term, the company’s in a comfortable position until 2018, when $1.5 billion of debt will mature.
One time boost?
While cash and cash equivalents dropped by $31 million in 3Q 2014, and debt levels have remained unchanged, Peabody Energy’s working capital has seen big changes. The accounts payable are up by $195 million to $1.66 billion, while inventories are down by $57 million to $491 million. This boosts cash flows as the net investment in working capital falls, and cash is freed up. Meanwhile, that’s partially offset by the $43 million increase in accounts receivables.
Adjusted free cash flows, after subtracting working capital changes, came in at negative $82 million in 3Q 2014. Unless coal prices increase substantially, Peabody Energy may not be able to generate positive cash flows for a sustained period.