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Coal Week

Peabody expects coal business to improve as recession eases


Peabody Energy Corp. said Tuesday its profits plunged 71 percent with both Europe and the U.S. using much less coal-fired power in the recession. But the performance still easily topped Wall Street’s expectations as the company raised its production outlook, confident its choppy ride over the past year may be easing.

The company is now moving aggressively into Australian mining and stepping up its Asian presence to satisfy one customer that is still buying a lot of coal: China.

China imported 21 million tons of metallurgical coal through August — according to Peabody, 10 times last year’s pace.

Eager to exploit opportunities in Asia, Peabody created a trading hub in Singapore during the quarter to get closer to clients in India and China.

Peabody, whose coal fuels roughly one-tenth of all U.S. electricity generation and more than 2 percent of worldwide electricity, said it earned $106.8 million, or 40 cents per share, in the Julythrough September period. That compared with $369.5 million, or $1.35 a share, a year ago.

Analysts polled by Thomson Reuters expect, on average, thirdquarter earnings per share of 22 cents and revenue of $1.42 billion.

Company shares rose 50 cents to $43.87 near the end of trading Tuesday.

Peabody and many other coalmining companies have been buffeted over the past year by the global economic slump that dramatically cooled steel and electricity demand, forcing coal producers to curtail their output as they absorbed weakerthan expected earnings.

But signs the steel industry may be reviving has some analysts bullish longer-term on companies such as Peabody, whose Australian mines produce about 20 million tons of coal a year, mostly of the variety used in steelmaking. Peabody said its exports of such Australian coal were nearly triple the pace of the first half of 2009.

Peabody upped the lower end of its production outlook for the year to 235 million to 245 million tons, up from its July forecast of 225 million to 245 million tons. Gregory Boyce, Peabody’s chairman and CEO, said the company intends to double its exports of Australian coal over the next five years to serve the fast-growing Asian markets.

The company said for all of this year, growing demand in Asia is driving Australia sales projections of 24 million to 27 million tons — 15 percent above 2009’s targets, with minimal capital required. In the United States, Peabody expects 2010 output of 185 million to 195 million tons, in line with last year’s expectations.

Peabody’s earnings are closely watched because the company usually is the first of the sector’s big players to report each quarter, giving analysts a snapshot of the industry’s health.

Peabody said its third-quarter revenue rose to 1.67 billion on sales of 63.5 million tons of coal, down from $1.9 billion and 65.6 million tons a year ago.

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