Peabody to cut costs after coal price, sales slump leads to Q4 loss

Houston — Peabody Energy plans to focus on cutting its costs in 2020 after lower coal prices and sales left the miner in the red in the fourth quarter of 2019, executives said Wednesday.

"During the full year, Peabody advanced initiatives against a difficult backdrop, but ultimately saw deterioration in both debt and equity prices," CEO Glenn Kellow said on the call.

"We saw an improved performance from many of our operations in the fourth quarter, and although several mines are in transition, encouraging progress is being made on the ground," he added.

Peabody sold 40.8 million st in Q4, down 11.7% compared with the year-ago quarter, and in the 12 months that ended December 31 sold nearly 166 million st, down 11.4% year on year.

Peabody posted a loss of $276 million in the most recent quarter, compared with a profit of about $253 million in the year-ago quarter. The company's revenues totaled more than $1.1 billion, down 20% year on year.

According to Chief Financial Officer Mark Spurbeck, the company's Q4 revenues declined "on lower seaborne metallurgical volumes and reduced pricing."

However, Spurbeck said, its Q4 "results were bolstered by solid cost improvements across four of our five operating segments. In fact, seaborne met and seaborne thermal as well as the Midwestern segment reduced per ton cost by 10% versus the prior year."

The company's full-year revenues topped $4.6 billion, down 17.2% year on year. In 2019, the producer posted a loss of $185 million, compared with a profit of about $664 million in 2018.

Q4 SEABORNE THERMAL COAL SALES DIP

The producer's seaborne operations sold 5.4 million st of thermal coal in Q4 and 19.5 million st in the full-year period, down 1.8% and up 2.1%, respectively.

The unit's average revenue in Q4 came in at $45.97/st, compared with $58.80/st in the year-ago quarter, and $49.69/st for the whole year, down from $57.58/st in 2018.

The segment's Q4 revenues totaled $251 million, down 22.8% year on year, and its annual revenues were $972 million, down 11.7% year on year, the company said.

Peabody's seaborne metallurgical coal operations sold 1.9 million st in Q4 and 8.1 million st throughout 2019, down 17.4% and 26.4%, respectively.

Despite the drop, Spurbeck said "we saw significant production improvements from both [the Coppabella and Moorvale mines in Queensland, Australia]. That resulted in the highest quarterly production volumes for the year."

Kellow added that "in seaborne met, we are taking steps to improve our operating performance and reduce unit costs. At our Coppabella and Moorvale mines, we are working through higher ratios and our focus is on moving overburden in the most cost-effective manner."

The company's seaborne met coal revenues averaged $104.62/st during the most recent quarter, down from $131.89/st a year earlier. For the entirety of 2019, the average was $127.62/st, down from $141.06/st in 2018.

The segment's revenues topped $201 million in Q4, down 32.6% compared with the year-ago quarter, and over $1 billion in 2019, down 33.4% from 2018.

PRB, MIDWEST SALES FALL

Peabody's Powder River Basin operations sold 27.6 million st in Q4, down 8% from the year-ago quarter, and 108 million st in the full-year period, down 10.1% from 2018.

The segment's revenues per ton in Q4 averaged $11.81/st and for the full-year the average was $11.37/st, compared with $11.35/st and $11.84/st, respectively, in the year-ago period.

Peabody's PRB revenues in Q4 totaled $352 million and topped $1.2 billion for the full-year period, down 4.4% and down 14%, respectively, compared with the year-ago period.

The company's Midwestern US operations sold 3.7 million st of coal in Q4, down 19.6% from Q4 2018, and 16 million st over the full-year period, down 15.3% from the previous year.

The company's regional revenues per ton averaged $39.95/st in Q4, down from $42.53/st in the year-ago period, and $41.90/st throughout 2019, compared with $42.44/st in 2018.

Peabody's revenues from its Midwestern operations totaled $147 million in Q4 and about $670 million in 2019, down 23.9% and down 16.4%, respectively, year on year.

Peabody sold 1.9 million st at its Western US operations in Q4, down 45.7% from the year-ago quarter, and 11.9 million st throughout 2019, down 19% from 2018.

Its Western revenues averaged $97.86/st in the most recent quarter, up from $43.26/st year on year. For 2019 as a whole, revenues averaged $53.48/st, up from $40.20/st in 2018.

Western revenues came in at about $192 million in Q4 and nearly $640 million throughout the whole year, up 25.5% and up 8.1%, respectively, year on year.

GUIDANCE

"We expect it to be an active 2020," Kellow said. "Our 2020 US contract position gives us strength where we have approximately 96 million st of PRB coal, fully priced. We have the flexibility to produce more should demand warrant."

From the PRB, Peabody has a sales target of about 96 million st. Pricing per ton is expected to average $11.13/st. The company expects its other US thermal coal sales to be about 20 million st at an average price of $37/st.

"Committed volumes of 20 million st in 2020 reflects the combined effects of [the Kayenta mine and other mines in the Midwest closing] and the strength of our contract book," Kellow said. ""Overall, US thermal [coal] costs are expected to be impacted by the federal coal excess tax," which will increase 25 cents/st.

The company's Australian thermal coal sales guidance for 2020 is about 11.5 million st, while its US thermal coal exports are expected to total 3.2 million st and obtain an average price of about $65/st.

"Within our operating segments, we're expecting increased seaborne met volumes and reduced met costs," Kellow said.