Yahoo Finance Peabody Energy Corporation (NYSE:BTU) Q1 2024 Earnings Call Transcript
Peabody Energy Corporation (NYSE:BTU) Q1 2024 Earnings Call Transcript May 2, 2024
Peabody Energy Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and welcome to the Peabody First Quarter 2024 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Karla Kimrey. Please go ahead.
Karla Kimrey: Good morning, and thanks for joining Peabody Energy Corp. for the first quarter of 2024. With me today are President and CEO, Jim Grech; CFO, Mark Spurbeck; and our Chief Marketing Officer, Malcolm Roberts. Within the earnings release, you will find our statement on forward-looking information as well as a reconciliation of non-GAAP financial measures. We encourage you to consider the risk factors referenced there, along with our public filings with the SEC. Now I'll turn the call over to Jim.
Jim Grech: Thanks Karla, and good morning everyone. First quarter operational results were highlighted by a number of challenges and successes. There were unforeseen production challenges in Australia that are now behind us, while thermal coal shipments in the US were impacted by unseasonably warm winter weather and low natural gas prices. Within our Seaborne Met segment, Shoal Creek continues to exceed production expectations, although shipments have been hampered by the failure of the Demopolis lock. We continue to strategically invest in our portfolio through the development of Centurion, and completed the acquisition of the adjacent Wood Loads coal deposit, which extends the mine life to over 25 years. Before I expand on the markets, I want to thank our global employees for their continued focus and commitment to working safely and efficiently.
Now turning to the global coal markets. Seaborne Thermal coal markets traded within a tighter range for the first quarter. The normal winter and low natural gas prices have continued to weigh on demand for thermal coal, coupled with a steady supply from the East Coast of Australia, resulting in Newcastle coal trading within a range of $120 to $135 per ton. Asian thermal coal imports are expected to remain robust, with China continuing to show increases in electricity demand with first quarter Seaborne Thermal coal imports estimated at a year-over-year increase of approximately 15%. Within the Seaborne Metallurgical coal market, coking coal prices declined during the quarter. Metallurgical coal demand was hampered by a thin steel margin globally, except for India, where robust economic output supported steelmaking profitability.
PCI prices also were treated during the quarter. However, not to the extent of higher quality coking coals. During April, we have seen improving steel margins and seasonal restocking for finding pricing support to metallurgical coal markets. In the United States, electricity generation for the first quarter of 2024 proved to be particularly challenging with a warm winter and significantly lower gas prices resulting in coal share electricity generation nationally declining to approximately 15% during the first quarter. With that said, coal continues to be a critical component to the country's energy generation, when looked at regionally in the US. As an example, coal power was relied upon and accounted for over 40% of generation in the MISO and SPP regions in various instances in January 2024 again, proving the importance of coal for a reliable grid.
Now moving on to our operating segments. The Seaborne Thermal segments had higher volumes than anticipated, with additional warping on volumes going to the domestic market as a carryover from the train derailment on the mainline in December. Average realized prices and costs per ton were lower than anticipated due to higher production at Wilpinjong, where we opportunistically mined some higher scenes, which we do when the market supports it. The higher production at Wilpinjong was offset by an extended longwall ramp-up at Wambo. Looking forward, we expect a higher proportion of Newcastle spec coal due to increased production from the Wambo complex. The Seaborne Met segment shipments were in line with expectations. Volumes are lower than ratable for the year due to an anticipated longwall move at Metropolitan and mine sequencing at the CMD.
Segment cost per ton were at the high end of our range, impacted by an unplanned Coppabella dragline outage and the acceleration of planned coal prep plant repairs at the CMJV, partially offset by higher production at Shoal Creek. Our sales mix was impacted due to mining some lower quality coal at CMJV due to mine sequencing. As we look forward to the full year, our sales mix should improve with additional sales and Shoal Creek through the anticipated opening of the Demopolis Block. In the PRB shipments were lower than expected as a result of an unseasonably warm winter and prompt natural gas prices that averaged $2.10. Segment cost per ton came in higher than expected due to lower volumes, but were somewhat offset by rationalization of discretionary cost spend.
Hollow PRB demand for the quarter was challenged, we are contracted to 85 million tons for the year. Our full year guidance assumes a normal summer and fall with customers meeting our commitments. Our customers have different demands or needs. We will work with them to be responsive, while still retaining the full value of our contracts. In other U.S. thermal, shipments were below expectations as we had a few customers reduced their shipments due to high inventories and low natural gas pricing. Segment margins were higher than anticipated due to favorable sales realization, which included some sales contract cancellation settlements. Even with the current market conditions, our exceptional sales team was able to book some new business. So, our price volumes for the year did not change.
Outside of our active operations, we continue to make progress at the Centurion mine, our key metallurgical coal growth projects. We've had some delays in the delivery dates of some mining equipment from the manufacturer, but expect development coal to occur in the second quarter. As previously announced, we closed on the words well transaction last month. We're currently developing an integrated mine plan and we'll discuss it more fully in the future. The recruitment of the initial Centurion mine development workforce is complete even though labor remains tight in the mining industry in Australia. We continue to expect the first longwall coal in early 2026 and capital expenditures remain in line with previous guidance. We are pleased to announce that for the first time in nearly 12 years, we are mining at our Lee Ranch mine in New Mexico.
In 2022, we secured a new long-term contract which extended the life of our New Mexico operation and supported the transition from El Segundo back to Lee Ranch. In summary, we have had some challenges this quarter. But as we look out to the full year, our operations and sales have us well-positioned. We completed two longwall moves in Australian, coal quality is improving, and our production plans give us confidence in reaffirming our full year guidance. I'll now turn it over to Mark to cover the financial details.
Mark Spurbeck: Thanks Jim. In the first quarter, we recorded net income attributable to common stockholders of $40 million or $0.29 per diluted share and adjusted EBITDA of $161 million. Included in these results was an estimated $18 million non-cash remeasurement charge from the weaker Australian dollar. The company generated $120 million of operating cash flow and had $61 million of capital expenditures with more than half of it dedicated to Centurion. During the quarter, we continued to execute on our shareholder return program and repurchased 3.2 million shares or 3% of shares outstanding. Under the existing $1 billion share repurchase program, we have $570 million of remaining share repurchase authorization. The company ended the quarter with $856 million of cash fully funded reclamation accounts and the new $320 million revolving credit facility.
Turning now to the first quarter segment results. Seaborne Thermal recorded $94 million of adjusted EBITDA. First quarter shipments were 100,000 tons more than anticipated and higher Wilpinjong production offset lower production at Wambo, for lower cost Wilpinjong production was offset by lower realized prices, resulting EBITDA and EBITDA margins of 33%, in line with the previous quarter. Seaborne Metallurgical segment generated $48 million of adjusted EBITDA. Average realized pricing was less than anticipated due to mining lower quality coal seam that the CMJV and PCI. coal prices remain weak, relative to premium hard coking coal. Costs of $139 per ton were at the higher end of guidance due to unplanned equipment and wash plant repair costs at the CMJV.
The U.S. thermal mines produced $63 million of adjusted EBITDA in the quarter on lower than expected shipments that Jim previously mentioned. The PRB mines shipped 18.7 million tons and generated $16 million of adjusted EBITDA. Cost came in at $12.74 per ton higher than expected due to lower production costs. The other U.S. thermal segment generated adjusted EBITDA of $47 million. We shipped 3.2 million tons, about 400,000 tons less than anticipated, but also benefited from contract cancellation settlements, which increased revenue and EBITDA margins above fourth quarter levels. Cost of $45.25 per ton are in line with guidance, as lower maintenance and repair spend offset less volume. Looking ahead to the second quarter, seaborne thermal volumes are expected to increase to 4.1 million tons, including 2.7 million export tons with higher volumes out of the Wambo complex.
400,000 export tons are priced on average at $146 per ton, with 1.3 million tons of high ash product and 1 million tons of Newcastle spec product unpriced. Costs are expected to remain consistent with the prior quarter and $45 to $50 per ton. Seaborne Metallurgical volumes are expected to be 1.9 million tons. 500,000 tons higher than the first quarter as the Metropolitan longwall move is now complete and mine sequencing improves at the CMJV. Volumes are expected to achieve 65% to 70% of the premium hard coking coal price, based on the projected sales mix and current price relativities. With higher production, costs are anticipated to improve to $110 to $120 per ton in line with full year guidance. PRB shipments are expected to be 15.5 million tons lower than rateable, as we enter the traditional second quarter shoulder season.
Costs will be temporarily elevated at $12.75 to $13.75 per ton due to lower shipments and resulting higher strip ratio. Other U.S. thermal coal shipments of 3.8 million tons are expected to be higher than the prior quarter, as we recently signed new contracts for 1.8 million tons to be delivered this year. We expect costs of $44 to $48 per ton in the quarter. Additionally in the second quarter, we have the $134 million cash purchase of Wards Well and are expecting tax payments of nearly $120 million in Australia, covering the remaining 2023 liability in the first half of 2024 estimated payments. With an implied stronger second quarter, we are reaffirming full year guidance. We expect to generate significant cash flow in the second half of the year and remain committed to returning capital to shareholders.
Strategically, we continue to take steps to deliver long-term value. We closed the Wards Well acquisition in April and continued development at Centurion. We expect first continuous minor development coal this quarter and are on track to commence longwall operations in the first quarter of 2026 on-time and on-budget. Operator, I'd now like to turn the call over for questions.
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