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Better coal markets, changes for Peabody lead to 5-year EBITDA high

Peabody Energy Corp. reported $1.49 billion in adjusted EBITDA in 2017, a five-year high for a company that succumbed to bankruptcy reorganization in a recent market downturn.

The company's increasing focus on shareholder return over volume growth, executives said on a Feb. 7 earnings call, is still guiding decision-making. Since Peabody was relisted on the New York Stock Exchange in April 2017, President and CEO Glenn Kellow noted, its share price has increased nearly 80%. Revenues rose 18% over the prior year on "robust seaborne pricing and higher U.S. demand."

The company has also increased its liquidity to $1.24 billion at year-end and released approximately $220 million of restricted cash to steer clear of the sort of heavily leveraged balance sheet that had weighed the company down before. Kellow said that by making a series of voluntary payments, the company reduced its net debt by nearly 50% since emerging from bankruptcy reorganization.

"Improved market conditions and Peabody's execution have fundamentally altered the trajectory of the company in the most positive of ways, and I credit our team of more than 7,000 employees for a job well done," Kellow, said on the call. "Whilst we had a highly successful year, we are not complacent. Rather, we enter 2018 committed to actions that will drive continued valuation uplifts throughout the commodity cycle."

Executive Vice President and CFO Amy Schwetz noted the company's record EBITDA was due to contributions from both the U.S. and Australian coal segments. Peabody targets coal sales of between 146 million tons and 158 million tons from U.S. operations in 2018, including about 115 million tons to 125 million tons from its Powder River Basin operations.

Schwetz said the company is expecting demand from the Powder River Basin to decrease marginally in 2018 due to retirements of U.S. coal plants.

"We'll take a look at where our customer requirements are later as we progress through the year and see where we end up," Schwetz said. "But we are very focused on maintaining strong margins out of that basin. We count on the PRB to be the anchor to our U.S. platform."

The company expects to sell about 29.5 million tons to 32.5 million tons from its Australia operations, including 11 million tons to 12 million tons of metallurgical coal.

Peabody projected capital spending between $275 million and $325 million, including about $40 million for lease buyouts in 2018 and $85 million for projects to extend the life of Australian mine operations and purchase of a new longwall mining machine for one of its Australian operations. Schwetz noted capital spending in 2017 was $199 million and said that year was likely a "pretty good proxy" of what Peabody's recurring sustaining capital level would be in the future.

The company also announced a quarterly dividend of 11.5 cents per share to be paid in March.

"Recognizing that near-term debt and liquidity targets have been achieved, we are evolving our financial approach to maintain financial strength while more greatly targeting the return of cash to shareholders in 2018," Schwetz said.