Coal miner Peabody Energy Corp (BTU.N) halved its capital spending for 2013 as it warned earnings would hit a trough in the first quarter due to weak prices and sales.
Peabody shares were up about 2 percent at $28.20 on the New York Stock Exchange on Friday. A weak coal market has pushed the stock down about 18 percent this year.
The company said it expects capital expenditures to be 50 percent lower than the $1.0 billion to $1.1 billion earmarked for 2012.
"People expected a bad first quarter. but the fact that capital expenditures have comes down so dramatically means they will have free cash flow," said Iberia Capital Partners analyst David Beard.
Damp demand from China and escalating operating costs and new taxes in Australia have hit Peabody, which has been struggling in the United States as power companies replace thermal coal with cheaper natural gas.
U.S. sales would decline by about 2 million tons in the first quarter, Peabody said. It forecast sales volumes of 180 to 190 million tons for the full year, compared with 188 to 192 million tons it targeted for 2012.
The company expects U.S. prices to fall 5 percent in the first quarter as higher-priced contracts expire.
The fall in prices was greater than anticipated, said analysts at Simmons and Co.
Peabody said it expects Australian sales volumes to rise to between 33 million and 36 million tons in 2013 from 31 million to 33 million tons this year.
Most of Peabody's growth outside the United States has come from Australia, where it took over Macarthur Coal a year ago. It has, however, put Australian expansion plans on hold and expects costs to rise about 5 percent in 2013.
The company, however, expects quarter-over-quarter improvement for the rest of 2013, driven by increased U.S. gas-to-coal switching as natural gas prices rise, and a pickup in global seaborne coal markets.
(Reporting by Swetha Gopinath in Bangalore; Editing by Joyjeet Das)