Peabody Energy Corporation (BTU) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen and welcome to the Peabody Energy Q1 2021 Earnings Conference. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. As a reminder, this conference is being recorded today. I would now like to turn the conference over to Ms. Alice Tharenos. Please go ahead, ma'am.
Alice Tharenos: Good morning and thanks for joining Peabody's earnings call for the first quarter of 2021. With me today are President and CEO, Glenn Kellow; and CFO, Mark Spurbeck. Within the earnings release, you will find our statement on forward-looking information as well as a reconciliation of non-GAAP measures. We encourage you to consider the Risk Factors referenced there along with our public filings with the SEC.
Glenn Kellow: Thanks Alice and good morning everyone. Before we get started this morning, I'd like to take a moment and welcome Alice to her new role as Head of IR and Communications for Peabody. Alice has over 20 years of financial and commercial experience with our company in the U.S. and overseas. Turning now to the quarter, we continue to see operational and productivity improvements take hold across the company. We're off to a good start on safety, particularly in the United States with injury rates for the quarter was
Operator: Hello, this is the operator. It does seem as though the speaker's line has been muted and is no longer broadcasting audio to the conference. Please standby just for a few moments while we attempt to fix this issue. Thank you. Again, apologies for the inconvenience, but we are trying to reconnect the speakers. Call should be back to normal within a few moments. Again, thank you for your patience. Again we are still trying to reconnect our speakers today. So, please, if you could continue to standby while we do try and reconnect them. Thank you again for your patience. Again I would like to thank everyone for your continued patience. As I do believe the speakers are on their way back and the issue should be resolved shortly. Thank you. Perfect, it does look like we do have our speakers joining us back here today. So, I would now like to turn the call back over to Alice Tharenos to continue her remarks and again, apologies to everyone for the delay there.
Glenn Kellow: Thank you. And yes, apologies. Somehow we were we were disconnected, but we could slink hello again and look, I'm just going to resume the comments. We were talking about the fact that our safety performance had improved probably 50% over the last year. We have lower cost per ton in three of our four operating segments compared to the prior year and further reduced SG&A spending. While seaborne thermal volumes and costs were temporarily impacted by flooding, and a ship letter outage, we anticipate performance progressively improving throughout the year. US thermal mines also performed well, lowering cost per ton 9% from the prior year, an outstanding performance given volumes were down 13%. Seaborne met cost per ton improve modestly over the prior year even as volumes were muted by idle mines and the ongoing pandemic. Productivity improvements at Coppabella and Moorvale contributed to the complex of becoming an $0.11 unfavorable increase in foreign currency rates. We continue to take action to improve our met coal operating performance. And while we recognize there certainly is more work to do, we are taking our foot off the pedal.
Mark Spurbeck: Thanks Glenn and good morning everyone. First quarter results demonstrated our continued focus on cost management and performance improvement, as cash flows from operations increased to $71 million compared to a net use in the prior year. This result was achieved despite lower volumes and average realized pricing. Compared to last year's first quarter, total volumes declined 15% with net shipments down 50% primarily due to the Shoal Creek and Metropolitan mines remaining suspended during the quarter. Lower pricing also weighed on results as average realized prices declined over $8 per ton for seaborne met products and $0.35 per ton for PRB thermal coals. Cost savings initiatives continued to garner results at the corporate office as well, with SG&A down 13% year-over-year, allowing us to revise our full year estimated SG&A costs down another $5 million. At this run rate, Peabody's annual SG&A expense would be at its lowest level since 1999. Interest expense of $52 million includes $11 million of one-time fees that were expensed upon completion of the refinancing transactions early in the quarter. Higher borrowing costs and amortization of related debt issuance costs also contributed to an increase in interest expense year-over-year.
Operator: Thank you. Okay. So, we will now take our first question from David at BMO Capital Markets. Please go ahead.
David Gagliano: All right. Thank you and thanks for taking my questions. I just have -- I have a -- I have a couple of short-term-ish and then one strategic question. On the short-term-ish type of questions. First of all, the second quarter outlook for flat or similar results. I was wondering wanting to get in talk through the puts and takes there. It looks like obviously, seaborne thermal prices are higher, there's some cost issues in the first quarter that seemed like they were one-time-ish in the seaborne thermal business. So, I would have expected a bit of a sequential improvement in the second quarter. So, I'm curious if you just talk through what the offsets are? That's my first question. And then, just real quickly, if you could just touch on what the volume expectations are from the Metropolitan mine, once it's restarted in the third quarter? And then my last -- sorry I'm going on -- but my last strategic question is if you could just give us an update on the CEO search. Thank you.
Mark Spurbeck: Hi David, it's Mark. On seaborne thermal, you're right, we're seeing improved pricing in the thermal markets, Newcastle thermal. We are continuing to transition to the Wambo Open Cut joint venture. So, volumes are improving, but still lower than run rates, not expecting significant though overall improvement in the next quarter.
Glenn Kellow: Maybe I'll take the next one, incentive Metropolitan, we've been continuing some development during this idle period. We're bringing back the workforce next week -- the remainder of the workforce next week. We'd expect to ramp up through the through the rest of the second quarter into the third quarter. That mine by reference produced about 1.3 million tons last year. And it is going to vary depending on longwall outages and longwall more move timings as well those ongoing cost demand. Your third question on the CEO search, the Board have indicated that -- the Company has indicated that it's undertaking both an external search and an internal search. And that process is still ongoing.
David Gagliano: Okay, just real quick -- thank you for that by the way. And just a real quick follow-up on the -- back to the first question. I understand the commentary on the thermal, but just overall that the commentary was basically a kind of a similar, I believe, second quarter result versus the first quarter. So, where are the offsets to the positives that we're seeing in thermal -- seaborne thermal and the cost situation probably in seaborne thermal on a quarter-over-quarter basis?
Mark Spurbeck: David, let me reiterate. I think Wilpinjong continues to perform according to the guidance that's out there and fairly consistent. I think, the Wambo Open Cut joint venture we have that impact. The underground as possibly had some inventory reductions in the quarter. We won't probably see that in the second quarter. Does that answer your question?
David Gagliano: So, let me just ask it more directly. Are unit costs going up, flat, or down in seaborne thermal quarter-over-quarter in the second quarter? And similar question for the Met business as well?
Mark Spurbeck: Thermal volumes coming down.
David Gagliano: Okay.
Mark Spurbeck: The unit cost improving sequentially over the first quarter.
David Gagliano: And then on the met side?
Mark Spurbeck: And on the met cost -- yes, again, the met volumes are really going to be contingent upon the ramp up of Metropolitan. The CM JV is having lower production in the second quarter.
David Gagliano: Okay. Thank you.
Operator: Thank you. We will now take our next question from Lucas at B. Riley Securities. Please go ahead.
Lucas Pipes: Hey, good morning everyone. Question on Shoal Creek, you mentioned in the release a couple of activities to improve productivity there and I wanted to -- could you elaborate at what specifically would be happening underground or maybe at the surface even? Would appreciate that. And then also in terms of the negotiations on the labor side, anything you could share there? Would appreciate that. Thank you.
Glenn Kellow: Thanks Lucas. And the thing I called out in terms of activity we made the decision to make some enhancements to the prep plant to upgrade yields. And that outage will take us through into the third quarter -- now in the middle of the of the third quarter. With respect to the labor discussion -- negotiations, as you would expect, are probably limited given their active discussions underway, limited on what I can say other than we are in discussions around ways in which we as a company believe that we can improve our competitiveness and productivity through that process.
Lucas Pipes: I appreciate that and then follow-up on the prep plant modification. So, is it fair to conclude that Shoal Creek wouldn't be restarted before all those upgrades are completed?
Glenn Kellow: Certainly that would be the limiting factor on shipments. With -- that would be true, it could be possible to run underground production before that time.
Lucas Pipes: That's helpful. Thank you. And then bigger picture question. Over the years, there have been discussions around the logic behind a potential separation of seaboard and more domestic U.S. assets. Is that something that is potentially contemplated that could make sense? Or what do you see kind of Peabody evolving over the foreseeable future? Would appreciate any thoughts you can share? Thank you.
Glenn Kellow: Lucas, as was indicated, there is a transition of the CEO underway. And that's probably best for the incoming CEO in terms of being able to respond to. Clearly the company, when you look across the portfolio, has an extremely strong U.S. thermal business. We have what we regard as the lowest cost and best position assets and the best basin in the PRB. Our Midwest business did exceptionally well in the quarter had very strong returns. And similarly, our seaborne thermal business is a strong business that's produced attractive margins. We've got more work to do on our met -- on the met front, you've seen the steps we've taken to improve that activity. And -- but there is more work to do at the same time, we believe in the long-term outlook for metallurgical coal.
Lucas Pipes: I appreciate that. Thank you and best of luck.
Glenn Kellow: Thanks Lucas.
Operator: Thank you. So, that is all the questions we have in the queue at this time. So, I would like to turn the conference back over to Glenn Kellow.
Glenn Kellow: Thank you, operator and look, apologies again for the technical disruptions that was at the start of the call. Thank you for joining us today. I'd especially like to thank our employees for continuing to keep safety at the forefront of all we do and continuing to execute on our various cost improvement initiatives. I'd also like to thank our customers, investors, and insurance providers for your continued support. Operator, that concludes our call today.
Operator: Thank you. So, this does conclude today's call and you may now disconnect.
Alice Tharenos: Good bye.
