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Earnings Preview: Peabody seen posting 1Q loss

Jim Suhr, AP Business Writer

ST. LOUIS (AP) -- Peabody Energy Corp., the world's biggest private-sector coal company, is expected to post sharply lower results compared to a year ago, when it reports first-quarter results before the stock market opens Thursday.

Like other coal companies, St. Louis-based Peabody has struggled amid stubbornly soft demand that has driven down coal prices. But the producer said in January there have been signs of recovery and it expects earnings to rise this year as some demand and prices improve.

Peabody was encouraged by China's growth prospects and expects coal demand in the U.S. to rise as prices increase for natural gas, a fuel that competes with coal for generating electricity. It also expects a boost from international demand for coal used in power generation.

In a recent note to clients, Raymond James analyst James Rollyson upgraded Peabody to "Outperform," saying he expected prospects of the company, whose shares have performed worse than many other coal stocks, to improve after the first quarter.

Peabody also faces legal challenges, the most visible being its involvement in the unfolding St. Louis federal bankruptcy proceedings of former holding Patriot Coal Corp.

In pursuing Chapter 11 bankruptcy last July, Patriot cited exceptionally soft coal markets, rising costs and "unsustainable legacy liabilities" tied to its 2007 spinoff from Peabody. Patriot said coal markets have only worsened since then, contributing to what the company now says are crushing labor and retirement benefit expenses requiring "critical financial relief in a timeframe that avoids severe business disruption."

The union has argued that Peabody set up Patriot to fail so pension and health care benefits involving tens of thousands of retirees and their families could be shed.

On the regulatory front, Peabody in February revealed that the Securities and Exchange Commission was investigating the company's role in the southern Illinois development of the largest coal-fueled power plant built in the U.S. in the past three decades. That Prairie State Energy Campus southeast of St. Louis includes a 1,600-megawatt electricity generating plant and an adjacent coal mine. Its two electricity generators went online last year.

The project began more than a decade ago but was dogged by construction snags and escalating costs. Peabody owns roughly 5 percent of the campus, which the company developed with a consortium of other public power cooperatives in various states. The plant now serves 2.5 million households from Missouri to West Virginia.

WHAT TO WATCH FOR: Analysts likely will look for Peabody's outlook for demand of metallurgical coal used in making steel, and to what extent the company sees its prospects improving after a presumably difficult first three months of this year. Analysts also will be watching closely for any guidance Peabody offers for 2013.

WHY IT MATTERS: Peabody's earnings are closely watched because the company usually is among the first of the coal sector's big players to report earnings each quarter. It gives analysts and investors a snapshot of the industry's health, including an outlook for thermal coal demand used to produce electricity.

WHAT'S EXPECTED: On average, analysts polled by FactSet expect Peabody to report a first-quarter loss of 14 cents per share on revenue of $1.78 billion. In January, the company said it expected the adjusted loss of 4 to 26 cents per share.

Analysts expect full-year earnings of 33 cents per share on revenue of $7.7 billion. Peabody has not offered a full-year forecast.

EARLIER SHOWINGS: In the first quarter a year ago, Peabody reported net income of $172.7 million or 67 cents per share on revenue of $2.04 billion.

STOCK PERFORMANCE: Peabody shares dropped 18 percent during the first quarter of this year.