April 15, 2009 / 12:27 PM / in 10 years

Peabody misses estimates, cuts coal production

NEW YORK (Reuters) - Coal miner Peabody Energy Corp (BTU.N) said on Wednesday it would cut production because of weak demand and its stock dropped 10 percent after first-quarter profit fell far short of Wall Street estimates.

The results were severely affected by a 23 percent drop in global steel production, which brought a sharp reduction in production of steel-making metallurgical, or coking, coal in Australia, the company said.

“Of major steel producing nations, only China is outpacing prior-year levels, with all other nations running 38 percent below 2008 on average,” Peabody said in a statement. “Operating levels at U.S. steelmakers are just 40 to 45 percent of capacity.”

In addition, it said global electricity demand is on pace to decline 1 percent to 2 percent in 2009. Peabody’s thermal, or steam, coal fuels about 10 percent of America’s electricity generation.

Peabody’s stock fell $3.48 to $25.86 on the New York Stock Exchange in morning trading.

“As expected, global demand for coal remained sluggish in the first quarter, driven by low capacity...at steel mills and declines in electricity demand,” the company said in a statement.

“For the near term, Peabody is trimming production to adjust to lower demand and right-size inventories,” said President and Chief Commercial Officer Richard Navarre. “These actions are needed to assist customers and avoid a prolonged market dislocation beyond 2009.”

During the first quarter, coal prices dropped dramatically. A ton of eastern U.S. steam coal that cost $61.50 on January 1 slumped 25 percent to $45.63 on March 31.

In a press release, Peabody said net earnings were $170 million, or 63 cents per share, compared with $57 million, or 21 cents per share, in the same quarter of 2008.

Income from continuing operations was 50 cents per share. Revenue rose 15 percent to $1.46 billion, the St. Louis-based company reported.

The results fell far short of analyst expectations of 95 cents per share and revenue of $1.633 billion, according to Reuters Estimates.

“The biggest area of the miss was Australia,” said analyst Jeremy Sussman, of Natixis Bleichroder.

He noted only 800,000 tons of coking coal were shipped from Australia in the quarter, compared with 1.8 million tons a year earlier.

Peabody said it was cutting 2009 production estimates to 185 million to 190 million tons in the United States and 20 million to 23 million tons in Australia, with total sales of 225 million to 245 million tons. In January, it had anticipated 190 million to 195 million U.S. tons and 22 million to 24 million Australian tons.

First-quarter sales volumes totaled 59.6 million tons, slightly below prior-year levels, reflecting planned production reductions, weather impacts in the Powder River Basin and deferred customer shipments in Australia, Peabody said.

“Forward price curves are higher for all energy products, and Peabody expects a sharp rebound when economies improve given supply reductions and the lack of current investment in future capacity,” the company said.

Peabody said it believes that the economic downturn, reduced exports and low natural gas prices could lead to U.S. coal demand declining by 70 million to 90 million tons in 2009.

Reporting by Steve James; editing by John Wallace, Dave Zimmerman

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