Peabody Body Energy (NYSE:BTU) the world’s single largest coal company announced their Q1 guidance would probably come in at the very low-end of the guidance range. Peabody which provides 10% of US coal supplies and 2% of global coal supplies is citing torrential rains and later flooding in Queensland Australia. The extreme weather events are negatively impacting everything. Port and rail operations, surface mines and underground mines.
OK so when everyone is swimming around operations are not a smooth as anticipated. Not good news but investors get that. One quarter due to weather, hmm! At the same time Peabody Energy Chairman and Chief Executive Officer Gregory H. Boyce said “Peabody continues to target significant increases in its Australia coal exports in 2012 to serve rising global demand for both metallurgical and thermal coal products.” So that means in the next three-quarters Peabody will make up the shortfall? Yes no. Just what did that macro strategic comment really mean? But if you cannot get existing operations to run smoothly just what is it that you are targeting that will create a positive impact in the next nine months. Baby its got to be Big to even out the numbers.
Oh by the way the stock is trading at 52 week lows. Interesting to note that the guidance adjustment came after the stock dropped about 10% in the past few days. Just saying. But the weather in Queensland is not just one little cloud burst. Three days before the guidance adjustment Queensland did have some extreme weather. So why did it take Peabody three days to adjust guidance? The press release threw out a nice round number of $50 million for early estimates of impacts. We all know that early estimates tend to be underestimates.
CEO Gregory H. Boyce. did comment about the supply disruption saying it all points to the tight supply demand balance for seaborne metallurgical and thermal coal. So is this a set up comment? Will Peabody continue to have reduced earnings as Queensland tries to dry itself up? Is the weather event causing the spot price of coal to increase? Has Peabody which claims to have trading capability been able to capitalize and mitigate some of the earnings losses.
Last but not least what disruption to client deliveries are anticipated. If your rail and harbour facilities are completely shut more than one boat load has been interrupted.
Assessing impacts after an extreme weather event are always difficult. But management should not take three days to realize they are flooded and facilities are inoperable. The next earnings call should prove to be very interesting. They have set the tone for negative earnings consequences.
In the mean time other mega commodity companies show no particular impact. BHP Billiton (NYSE:BHP) admittedly a very diversified commodities player possessing significant coal interests seems to be unaffected or at least is keeping quiet like a church mouse. Anglo-American which has five mines in Queensland also is not reporting any substantive problems. Anglo-America trades in London, Johannesburg as well as pink sheets. While their facilities may not have experienced the same extreme weather event/consequences if supply balance is being affected their share prices would have been affected. So far it seems like a pure Peabody problem.
George Gutowski writes from a caveat emptor perspective.
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