Peabody Energy (BTU) Misses Earnings by a Mile; CSX (CSX) Not so Great

The next few weeks, a lot of posts will be covering individual companies that I'll be using as my personal gauge of green shoots, rather than politicians and CNBC pundits waving their hands furtively in the arms telling us about them. Unlike the "market", I won't be looking for "better than expected" as a measure - "expected" means nothing to me; it's a bunch of analysts who create a number that means little... I am looking at year over year, or quarter over quarter progress and in some cases guidance (or lack thereof) if I trust the CEO.

Lost in the hubbub of Wells Fargo last Thursday was some weakening same store sales numbers by Walmart (WMT)... WMT is 10% of ALL US sales and a place where consumers (ever weakening) have been fleeing. This morning the CEO said they expect a long drawn out "green shoot" recovery....err, recession. I'd consider that a brown shoot but hey Wells Fargo is booming with 0%ish money given to them - that's all that matters. The stock market has done an excellent job from time to time over the past 15 months of ignoring CEOs (what do they know about their business?) and forecasting recoveries (that have never come). I believe the stock market has now forecasted 6 of the last 0 recoveries. What will be ironic as we go forward - as I wrote earlier - is it now appears those companies under the government arm will be "beating" while those facing the real economy without nanny state will be facing reality. That is until we put the entire US economy under nanny state.

Coal is an excellent market for "recovery" because it indicates electricity usage (and steel usage) - as green shoots sprout the world over, coal prices should recovery. And since China is going to save the world (ahem) - Peabody Energy (BTU) with large operations in Australia (which is like China's Mexico) should tell us all about the green shoot recovery.

So far? Not so much on either count. As we said last quarter, we would see many companies pull out full year guidance because the global economy is so bad, and no relief is in site. This will happen again this quarter. But really what does Peabody know about coal demand... "the Oracle" that is the market which can peer into the murky future is telling us not to worry...

Until facts come out, and you take a 12% hit in stock price. If it weren't for these darn facts this stock market could be at least 80% higher. Now remember, in coal we have some of their production locked into long term contracts (which is good at times like this when spot prices are falling) and some production is sold at spot.



Via AP

• Coal miner Peabody Energy Corp. said Wednesday its first-quarter profit tripled, but the performance fell short of Wall Street's expectations as the company deferred its earnings outlook for the year and again trimmed its production.
• The St. Louis-based company, one of the world's biggest coal producers, reported net income attributable to common shareholders of $170 million, or 63 cents per share, as higher, locked-in prices fetched on its contract sales offset slumping spot coal prices.
• Peabody said it sold 59.6 million tons of coal during the quarter, down slightly from 60.9 million tons a year earlier, reflecting previously announced production cuts, weather impacts in Peabody's Powder River Basin operations in Wyoming and deferred customer shipments in Australia.
• Citing "continued uncertainty around the economy, steel demand and electricity generation," Peabody said it was paring its 2009 production estimates to 185 million to 190 million tons in the United States and 20 million to 23 million tons in Australia, with total sales of 225 million to 245 million tons. The company earlier had expected output of 190 million to 195 million tons in the U.S. and 22 million to 24 million tons in Australia.
• Peabody also said it would hold off on offering its full-year financial outlook, saying such results will be affected by issues including the length of the global economic slump, Australian seaborne coal pricing, volumes and the potential for more customer shipment delays.
• As noted by analysts, Peabody said global demand for coal remained sluggish over this year's first three months, partly because steel production worldwide slumped 23 percent from a year ago and electricity demand slipped.

But other than that, they see green shoots everywhere.

• Daniel Scott, an analyst with Dahlman Rose & Co., called Peabody's first-quarter showing "a discouraging start to earnings season" among coal companies. "The wide earnings miss combined with negative sentiment in today's release are not encouraging, in our view," Scott wrote in a note to investors. "Significant unpriced volume in Australia and lack of financial guidance are also potential overhangs on the stock."

Via Reuters

• The results were severely affected by a 23 percent drop in global steel production, which brought a sharp reduction in production of steel-making metallurgical, or coking, coal in Australia, the company said.
• "Of major steel producing nations, only China is outpacing prior-year levels, with all other nations running 38 percent below 2008 on average," Peabody said in a statement. "Operating levels at U.S. steelmakers are just 40 to 45 percent of capacity."
• In addition, it said global electricity demand is on pace to decline 1 percent to 2 percent in 2009. (that is an amazing statement considering each year more of the world becomes urbanized)
• Peabody said it believes that the economic downturn, reduced exports and low natural gas prices could lead to U.S. coal demand declining by 70 million to 90 million tons in 2009.

I won't post an in depth look at results from railroad CSX (CSX) but that is another one that posted last night to look at for a look at "real economy". Again, I could care less if they beat the analysts numbers (which is why the stock is flying) - I care about how their real business is doing. And it's not good.

• Railroad operator CSX Corp. said Wednesday it predicts double-digit declines in shipping volume to continue through the second quarter, and expects to furlough more employees as a result.
• The Jacksonville, Fla.-based company said Wednesday in a conference call with analysts that sales will continue to be hurt as demand to ship goods by rail plummets. Railroads face stiff competition from trucking companies that have slashed rates to remain competitive, as well as overall economic weakness.
• CSX Corp. reported on Tuesday its first-quarter earnings dropped 30 percent, as slowdowns in the housing, construction and automotive markets continued. The railroad transports everything from cars to toys, and its performance -- like that of its competitors -- is considered an indicator of the nation's overall economic health.
• The railroad expects sales in nine out of its 10 business segments to fall in the April-to-June period compared with the same time last year.
• CSX said it might see some demand improvement as stimulus dollars are used for new infrastructure projects, but it expects weak volume to continue. And segments that have been strong points for the last year -- such as coal -- should decline as utilities use less coal to run power plants with lower demand and steel production falls.

So for CSX today is a "better than expected" day so time to run the stock up. And the bulls will say bad data is backwards looking and CEOs simply cannot see the bright future ahead in "6 months" that stock market speculators can...(funny how when news is good they don't say its backwards looking - they say it's a green shoot; how exactly is that?)

As always it does not matter what reality is in the stock market; it matters what the perception of reality is. And that is a much harder thing to guess.

No position