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Peabody Climbs on Mountain of Coal

Posted on: Wednesday, 19 April 2006, 12:00 CDT

By Jeffrey Tomich, St. Louis Post-Dispatch

Apr. 19--Peabody Energy Corp. shares posted their biggest gain in almost five years Tuesday after the company said first-quarter profit more than doubled on increased output and rising coal prices.

St. Louis-based Peabody, the world's largest publicly traded coal producer, said revenue rose 22 percent to $1.31 billion, mostly because of higher prices for coal. Chief Executive Gregory H. Boyce said the company continues to expand production and replace existing supply agreements with new, higher-priced contracts that will continue to fuel earnings growth.

The earnings report came on a day when natural-gas prices jumped 5.7 percent, bolstering the case for coal as a lower-priced alternative to help meet growing energy demand.

"It reinforced a positive view of the industry fundamentals," said Mark Reichman, an analyst at A.G. Edwards & Sons Inc. "And they outlined a lot of opportunities both domestically and outside the U.S."

Peabody's earnings per share of 48 cents exceeded analysts' average estimate of 44 cents, despite higher operating costs related to transportation problems. The company said rail service from western mines was "lackluster" during the quarter and cyclones in eastern Australia delayed coal shipments there.

Shares of Peabody rose 10 percent, or $5.39 a share, to a record $56.75 in trading on the New York Stock Exchange. The stock has risen 38 percent this year after more than doubling last year.

Tuesday's earnings report also boosted shares of Creve Coeur-based Arch Coal Inc. and other coal stocks on expectations that coal demand should remain strong, both in coming months and longer term, Reichman said.

The Energy Department estimates that coal shipments in the country rose 5.8 million tons in the first quarter as utilities replenish inventories and avoid running more expensive natural-gas fired power plants.

High prices for natural gas have led many utilities and power producers to seek regulators' permission to build new coal-fired power plants. Nationally, more than 140 new plants have been announced and construction has begun on 13 of them. Plants under construction would require an additional 25 million tons of coal a year, according to the Energy Department.

Peabody is trying to seize a share of the new demand by increasing production by 75 million tons a year, or more than 30 percent, over the next four years, Boyce said. The projects include the new Wildcat Hills and Lively Grove mines in Southern Illinois that will collectively produce about seven million tons a year. The company has also invested in projects to convert coal into synthetic natural gas or transportation fuels.

PEABODY ENERGY CORP.

--Exchange: NYSE, Symbol: BTU

--Tuesday's close: $56.75, Change: $5.39

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Copyright (c) 2006, St. Louis Post-Dispatch

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BTU, ACI,

Source: St. Louis Post-Dispatch

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