Coal miner Peabody Energy Corp. said Monday its third-quarter profit plummeted 84 percent, but the company sees the global coal market stabilizing after being battered for months by competition from cheaper natural gas and lower coal pricing.
Despite the big drop, St. Louis-based Peabody's adjusted results topped Wall Street expectations, and its shares were the leading gainer on the Standard & Poor's 500 in morning trading.
The world's biggest private-sector coal company, whose net income now has fallen for the past three quarters, said its net income for the July-through-September period totaled $42.9 million, or 16 cents per share. That compared with $274.1 million, or $1 per share, last year.
Income from continuing operations was 46 cents per share, topping the 34 cents per share forecast by analysts, according to FactSet.
Revenue totaled $2.06 billion, up from $1.98 billion a year ago. Wall Street expected $1.96 billion.
Peabody shares leaped $3.31, or 12.8 percent, to $29.20 in morning trading. Trading volume in the first hour topped average daily trading by 10 percent.
Peabody raised the lower-end of its 2012 sales forecast by 10 million tons — to between 240 million and 250 million tons — and said it expects adjusted full-year diluted earnings per share of $2.10 to $2.30. Analysts, on average, were expecting full-year profit of $1.86 per share, with estimates ranging from $1.50 to $2.68.
The company, which earlier this year trimmed its production outlook in the face of power plants turning to cheaper natural gas instead of coal for electrical generation, also said it has identified roughly $100 million in potential annual savings, largely through workforce reductions, lower spending on outside services and elimination of contractors. Peabody did not immediately identify where the job cuts might come.
"Peabody remains focused on significant cost containment and capital discipline activities and expects to realize the benefit of these programs over the next year," Gregory Boyce, Peabody's chairman and chief executive, said in a statement. "While the global coal environment remains challenged, there are indications that markets are stabilizing through U.S. gas-to-coal switching, higher European coal-fueled generation and increased China infrastructure spending."
Peabody and others in the coal-mining industry have faced headwinds as declining global thermal coal prices and low natural gas prices pushed up coal stockpiles at utilities. But given a rebound recently in natural gas prices, Boyce said U.S. coal demand rose sharply over the past three months, helping boost the coal market's share in U.S. electricity generation from a low of about 30 percent during the second quarter to about 39 percent last month.
Peabody projects that U.S. coal demand will decline about 120 million tons this year, but said the vast majority of that dropoff already has taken place.
Peabody's earnings are closely watched because the company typically is among the first of the coal sector's big players to report results each quarter, giving analysts and investors a snapshot of the industry's health.
Some analysts on Monday cheered Peabody's latest showing, including its cost-cutting considerations.
"While management updated an optimistic view on global coal markets, they appear to be paying close attention to proper capital allocation and overhead reductions, welcomed and needed at this stage of the cycle," Sterne Agee & Leach analyst Michael Dudas wrote, affirming his "Buy" rating on Peabody's stock.