Peabody Energy Corp (BTU.N) reported lower second-quarter earnings on Tuesday and forecast a third-quarter profit well below Wall Street expectations amid weak coal markets, sending it shares down 10 percent.
Profit margins at Peabody's Australian coal operations fell by more than half in the latest quarter, while U.S. margins rose, the company said, although U.S. production volumes slipped.
Last month Peabody cut its capital budget for the year by 8 percent due to weak demand for thermal coal as power producers turned to cheap supplies of natural gas.
For years, coal-fired power plants supplied about half the U.S. power market, but that share has shrunk as vast new supplies of natural gas have come on line, pushing prices for that fuel to their lowest levels in a decade in April.
U.S. power production from natural gas nearly matched the output from coal-fired plants for the first four months of 2012, with each of the fuels contributing 32 percent of the nation's power.
But a recent rebound in the cost of U.S. natural gas has helped boost demand for coal, Peabody said. Coal prices rose in the Midwest and West in the second quarter.
"U.S. coal markets have shown some positive signals, but significant recovery is not yet at hand," Chief Executive Greg Boyce told a conference call.
Global demand for coal is still expected to grow, largely from customers in Asia, he said, and coal's share of total energy demand has risen to 30 percent, the highest level since 1969.
LOWER PROFITS AND OUTPUT
Peabody's second-quarter net earnings were $204.7 million, or 75 cents per share, compared with $284.8 million, or $1.05 per share, a year earlier.
Excluding a $59.7 million tax benefit, earnings were 51 cents a share, falling short of analysts' average forecast of 53 cents, according to Thomson Reuters I/B/E/S.
Revenue rose nearly 1 percent to $2.0 billion, slightly below analysts' forecast of $2.06 billion.
The company said it had repurchased $242 million of bonds and $100 million of shares during the quarter.
The St. Louis-based company said third-quarter earnings before one-time items would be 20 cents to 45 cents a share, well below the 65 cents that analysts have forecast.
Peabody also trimmed its full-year coal sales forecast by 5 million tons to between 230 million and 250 million tons. It now expects Australian sales of 31 million to 34 million tons, down 2 million tons from its previous estimate.
"The volumes we've reduced in Australia are really the result of underperformance at our contractor-operated mines," Boyce said, and the company was proceeding with plans to take over more of those operations next year.
Rival Arch Coal Inc (ACI.N) has cut about a tenth of its workforce, closed three higher-cost mining complexes and reduced capital spending, while Alpha Natural Resources (ANR.N) has stopped production at four mines, reduced output and cut jobs.
Patriot Coal PCXCQ.PK, which was spun off from Peabody in 2007, filed for Chapter 11 bankruptcy protection earlier this month.
Shares of Peabody fell 10.5 percent to $20.72 in midday trading.