ST. LOUIS (AP) — Peabody Energy's second-quarter profit fell with so many utilities using cheaper natural gas in place of coal.
The world's biggest private-sector coal company trimmed its 2012 production outlook and forecast lower-than-expected earnings for the third quarter. Its stock price slid, though the latest results beat Wall Street expectations.
The coal industry and its stocks have been battered — St. Louis-based Peabody's shares dropped 16 percent during the second quarter — as utilities switched to cheap natural gas from coal to generate electricity. Natural gas prices are the lowest in years because of huge supplies from booming production. And the mild winter across much of the nation didn't put much of a dent in the gas surplus.
Natural gas prices did hit a high for the year Tuesday as scorching temperatures sent people scampering for the air conditioner, but prices are still well below last year, and a quarter of what they were just four years ago.
Peabody's net income totaled $204.7 million, or 75 cents per share, in the second quarter, down from $284.8 million, or $1.05 cents, a year earlier. Revenue totaled $2.0 million, on par with $1.98 billion a year earlier. Wall Street expected Peabody to earn 53 cents per share on revenue of $2.06 billion, according to FactSet.
Citing what he called "a choppy market environment," Peabody Chairman and Chief Executive Gregory Boyce said "the industry experienced significant headwinds in the second quarter, with declining global thermal coal prices as well as low U.S. natural gas prices driving record high U.S. utility coal stockpiles."
Still, he said, second-quarter imports by China — the world's second-biggest economy and a key Peabody market — hit record levels, and third-quarter global prices for coal used in making steel have settled at higher levels. Natural gas prices in the U.S. also have rebounded more than 50 percent from their springtime lows, Peabody said.
"Peabody is weathering the macroeconomic storms well," Boyce told analysts during a conference call. Yet "Peabody is guarded in our near-term view of global market fundamentals."
"U.S. coal markets have shown some positive signals, but significant recovery is not yet at hand," Boyce added, believing U.S. coal use will rebound next year as natural gas prices rise. "We continue to be cautious, given European recession, China's deceleration and high stockpiles that persist in the U.S."
The company forecast third-quarter earnings at 20 to 45 cents per share, well below the 65 cents a share estimated by analysts surveyed by FactSet. Peabody also pared its 2012 coal sales expectations by 5 million tons from its April projection, to between 230 million and 250 million tons.
Shares of Peabody fell $2.61, or 11.3 percent, to close at $20.55 on Tuesday.
Peabody's earnings are closely watched because the company usually is among the first of the coal sector's big players to report each quarter, giving analysts a snapshot of the industry's health. Peabody rival Arch Coal Inc., which last month said it would lay off about 750 workers in the Kentucky, Virginia and West Virginia coalfields, reports its second-quarter earnings Friday.
"We had thought a positive result from (Peabody) could have sprung a trap on the bears' big short positions in the sector, but this result won't do the job," JPMorgan analyst John Bridges wrote in a research note Tuesday to clients. "Other coal companies with a more U.S.-driven bottom line could report more positively and lift the group, but the cautious tone in Peabody's commentary is unlikely to lift the cloud that hangs over this sector."
Peabody said that industry data last month showed that coal again was the fastest-growing major fuel last year, rising 5.4 percent as the only fossil fuel to record above-average growth. Coal now accounts for 30.3 percent of global energy consumption, the highest share since 1969.
In the U.S., Peabody has mines in Illinois, Indiana, Wyoming, Arizona and New Mexico. It also owns mines in Australia.