Peabody(US:BTU)2019-02-06 21:53Financial Data and Key Metrics Changes - Fourth quarter revenues totaled $1.4 billion, marking an 8% decline from the prior year [12] - Adjusted EBITDA margins for the full year 2018 totaled 25%, well above the average for the U.S. S&P 400 MidCap benchmark [8] - Free cash flow of $1.3 billion exceeded targets, with total liabilities reduced by more than $0.5 billion [8][15] - Income from continuing operations, net of income taxes, decreased to $145 million compared to the prior year [17] - For the full year, revenues of $5.58 billion came in just above 2017, reflecting strengthened seaborne prices despite a 3% reduction in total sales volumes [18] Business Line Data and Key Metrics Changes - Fourth quarter adjusted EBITDA totaled $274 million compared to $416 million in the prior year, including costs related to North Goonyella and Shoal Creek [20] - Seaborne thermal segment delivered fourth quarter margins of 42%, expanded nearly 10% over the prior year, contributing $138 million in adjusted EBITDA [22] - Seaborne metallurgical segment shipped 2.3 million tons in the fourth quarter at an average realized price of $131.89 per ton, with adjusted EBITDA of $26 million [25][26] - U.S. thermal operations adjusted EBITDA declined $18 million to $144 million in the fourth quarter due to lower volumes and the roll-off of higher-priced legacy contracts [29] Market Data and Key Metrics Changes - Seaborne thermal coal prices averaged $105 per ton in the fourth quarter, with demand growth driven by China, India, and ASEAN nations [40][41] - Premium hard coking coal spot pricing averaged $221 per metric ton in the fourth quarter, with strong pricing levels upheld by favorable supply-demand fundamentals [46] - U.S. thermal exports rose an estimated 34% over the prior year, with inventories reaching their lowest levels since 2005 [49] Company Strategy and Development Direction - The company remains focused on enhancing shareholder value and has repurchased $1.1 billion of common stock, representing more than 25% of its current market capitalization [10] - Peabody is pursuing life extension projects to maintain export thermal coal volumes and has plans for significant capital investments in seaborne portfolios [52][55] - The acquisition of Shoal Creek is expected to enhance the seaborne metallurgical platform, with a focus on high-quality coal for Asian and Atlantic steel customers [56][116] Management's Comments on Operating Environment and Future Outlook - Management noted macro concerns such as slowing global GDP growth and trade issues, but underlying seaborne met and thermal conditions remain positive [37] - The company expects to generate strong operating cash flows and maintain financial strength despite operational challenges [81] - Management expressed confidence in returning to production at North Goonyella, targeting limited continuous miner volumes in late 2019 and longwall production in early 2020 [64][90] Other Important Information - The company received recognition for its safety efforts and ESG initiatives, including awards for reclamation and responsible mining practices [11] - Capital expenditures for 2019 are anticipated to be higher than 2018, with a focus on life extension projects and the Shoal Creek acquisition [34][82] Q&A Session Summary Question: What is the level of maintenance versus growth CapEx in 2019? - Management indicated about $200 million a year of sustaining CapEx, with additional projects layered in as opportunities arise [86] Question: What gives increased confidence in resuming production at North Goonyella? - Management noted assessments of underground conditions showed the majority of the mine remains unaffected, allowing for a staged reventilation and reentry process [90][92] Question: What is the outlook for PRB demand in 2019? - Management expects a relatively proportionate reduction in U.S. coal demand, with dynamics related to weather conditions and overall economic growth [100][102] Question: How does Peabody view potential for more U.S. met coal M&A in 2019? - Management views the Shoal Creek acquisition as a unique opportunity to enhance the seaborne metallurgical platform, but does not signal a broader U.S. met play [116] Question: How will earnings cadence look throughout 2019? - Management anticipates a more ratable pace for thermal coal volumes, with metallurgical segment volumes expected to be backloaded towards the second half of the year [118]