Peabody Energy Earnings Call Nuggets: Apples-to-Apples Basis for Ongoing EPS and Competitors’ Production Decisions

Peabody Energy Corporation (NYSE:BTU) recently reported its fourth quarter earnings and discussed the following topics in its earnings conference call.

Apples-to-Apples Basis for Ongoing EPS

Shneur Gershuni – UBS Securities LLC: Just before I start my questions I was just hoping to get one clarification. There are a lot of moving parts in today’s press release and I understand you got to report on a GAAP basis and so forth, but when we think about it from an apples-to-apples basis on an operating EPS basis, Q3 versus Q4 and then you have the $48 impact, I kind of end-up with about $0.36 estimate for 4Q kind of an apples-to-apples basis for ongoing EPS. Is that a fair way to think about this quarter?

Michael C. Crews – EVP and CFO: Yeah, I think, that’s a fair way to look at it based on the way you would have been modeling. You would not have included any of these asset impairment or mine closure costs or these valuation allowance adjustments, so that math seems reasonable on an ongoing basis.

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Shneur Gershuni – UBS Securities LLC: Just two quick questions here. Overall, you’re guiding into the low-80s for cost for 2013 in Australia and kind of the shape of the curve is that you’re expecting cost to improve throughout the year as you shift from – to owner-operator and so forth. Is there kind of a target – a year-end target or a (zip code) kind of where you expect to end up by the end of the year, is it still in the 80s or is it in the high-70s? So, I was wondering if you can give us a little bit more color on cost shape for this year for Australia.

Michael C. Crews – EVP and CFO: In the release what we talked about for our guidance, we’re targeting the low $80 per ton range for the year and I recognize there is a bit of range there around what low-80s constitutes. As you think about the first quarter some of the guidance we gave in December and some of the color that we’ve talked about the additional overburden removal that we need to do and some of that’s just the timing of overburden removal at Wilpinjong and in the case of Eagle field that we talked about and December is actually moving to a new mining area. So, when you look at some of that, you look at where we think volumes are going to be that’s going to drive a portion of the cost in the first quarter a bit higher, but then we expect that to improve over time, so by the time you get to the full year basis, you could be little lower in that low-80s range.

Shneur Gershuni – UBS Securities LLC: Then just one follow-up question, Greg, you had mentioned interest in disposing of assets and so forth and a focus on the balance sheet. You did purchase some debt in shares in 2012. You’ve got a fairly low CapEx or cash for ’13, and if you’re kind of expecting things to improve in 2Q and 3Q and 4Q, we’d expect you to have some free cash flow and so forth. Do you need asset sales to execute a reduction in debt or do you see or forecasting you’re able to use some of your free cash flow to purchase some debt and maybe even consider some shares as well too?

Michael C. Crews – EVP and CFO: Well, I think right now, we’re showing a combination of both tracks Shneur. Obviously any excess cash flow that we generate and we believe we will, we’ll use that for – focus more on debt reduction in the current time frame, but we also believe that we do have our suite of selected assets that could be monetized and we would use those proceeds initially for debt reduction and then depending on how much progress we make on our debt reduction, we would look at other uses for that cash.

Competitors’ Production Decisions

Michael Dudas – Sterne, Agee & Leach Inc.: Greg, you mentioned in your prepared remarks you expect to see the balance in the U.S. improve as we see further production cut backs. Could you share maybe a little bit more detail on how you’re seeing on the global, thermal and met side production decisions by competitors out of Australia, Indonesia, Mongolia on the met side and add Columbia on the thermal side?

Gregory H. Boyce – Chairman and CEO: Sure, well obviously, I can’t really talk to what goes on behind their decision making process, but just the observations that we would have in the marketplace, you can certainly see that when met coal prices got to the point where they are in the first quarter, whether it was disputes in Mongolia, whether it was reduced production out of Australia, whether it was the U.S. exports coming down significantly out of the East Coast we started to see increased supply response based on that level of pricing which obviously we think is a good indicator of – that pricing will need to go up in order to sustain things, and that’s on the met side. I mean, on the thermal side, again you saw a reduction in East Coast exports. We saw a fairly large number of Australian reductions, particularly from the higher cost section of the Australian framework and even to a certain degree some of the Indonesian producers struggling a bit. So, again we start looking at what price we got down to in the seaborne market in the fourth quarter on a spot basis and that we are starting to take production off again that gives us some confidence going forward that we should be able to see the type of price recovery through the year that we would like to see.

Michael Dudas – Sterne, Agee & Leach Inc.: My follow up, Greg, would be in the news recently we’ve seen a major mining company reassess their opportunities for mining coal in Mozambique and with sharing some issues that there will be talk about disputes at Mongolia et cetera. Could you address those on where new or expanded opportunities in those countries maybe in the stage, has it been delayed a few years because of what’s been happening in the marketplace and also on the government side is there any more thoughts on your participation in Tavan and how that process is moving forward throughout 2013?

Gregory H. Boyce – Chairman and CEO: Well, maybe just to talk about Mongolia for a minute in terms of our involvement there. Obviously, we still are involved in Mongolia. We’re still involved in discussions around Tavan Tolgoi. We’re still involved in discussions with their government as they begin to look at their mining laws to try and come up with a framework that make sense on a go forward basis. When the markets – the full steam came out of the market to give everybody an opportunity to step back and look at these new projects and say what’s the timing, what’s the way to generate value, when is the right point in time when you will start developing and bringing new product into the marketplace. And in the case of Mongolia gave them a chance to step back and say we want to take a look at the right mining law framework. We’re still positive in the long-term. We’ve always tried to indicate cautiousness in the near-term in terms of any timing expectations. I think when you add up Mozambique, when you add up Mongolia, when you look at some of these other frontier areas, it just points to the inherent value of the operation in the Australian platform that we have because we know we can mine those coals and get them to market and the concept that all of a sudden the market is going to be oversupplied with high quality hard met coal from all these frontier areas, I think, we’re seeing is just not the case. It’s not easy to turn this stuff on and produce it. Therefore it bodes well for those that have it in their portfolio and can produce and bring it to market. Even if you have to have pay a little higher royalty or tax out of Australia, it’s still the right zip code to be producing high quality met coal.

A Closer Look: Peabody Energy Earnings Cheat Sheet>>