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Will Peabody Energy’s Margins Improve in 2Q16?

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Jul. 22 2016, Updated 1:04 p.m. ET

Peabody Energy’s EBITDA estimates

Peabody Energy (BTUUQ) reported total adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of about $99 million for 2Q15 and an EBITDA margin of 7.4%.

Analysts expect Peabody Energy to report $55 million as EBITDA for 2Q16 and 5.1% as EBITDA margin. A lower EBITDA figure implies lower income from the company’s ongoing operations.

Analysts expect a significant improvement in Peabody Energy’s EBITDA and EBITDA margins in the second half of 2016. This is consistent with the company’s fiscal 2016 guidance and anticipated increase in coal (KOL) shipments in the second half of 2016 due to summer cooling demand.

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Operating profit

Peabody Energy reported a consolidated operating loss of about $976 million for 2Q15. Analysts expect the company to report an operating loss of about $80 million for 2Q16.

Peabody Energy recorded a one-time asset impairment charge of ~$901 million in 2Q15. Excluding non-cash impairment charges, operating losses could have been around $75 million.

A decrease in revenues and an increase in other operating expenses could have a negative impact on operating profit, according to analyst expectations.

Net income

Peabody Energy reported a consolidated net loss of about $158 million for 2Q15. Analysts expect the company to report a net loss of about $83 million for 2Q16.

Lower revenues are in line with the company’s weak guidance of coal shipment volumes for fiscal 2016. For 2016, Peabody has total shipment guidance of 150 million–160 million tons. The company expects its capital expenditure to be $120 million–$140 million.

The continued downturn in the commodity market can have a significant impact on future margins for Peabody Energy and peers Arch Coal (ACIIQ), Alpha Natural Resources (ANRZQ), and Cloud Peak Energy (CLD).

Next, we’ll discuss the factors that investors should look for in Peabody Energy’s 2Q16 earnings results.

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