Tickers in this Article: BTU, ACI, CNX, JRCC, CLD
Coal producer Peabody Energy (NYSE:BTU) continued its trend of strong profits, as it reported robust first quarter earnings. The quarter's results were achieved despite problems from flooding of Peabody's key Australian operations.

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Australia Still Delivers

Australian pricing helped drive total company revenues in the quarter to $1.74 billion, up from $1.52 billion in the quarter a year ago. Consolidated company sales totaled 61.2 million tons, an increase from 58.3 million tons. While U.S. sales advanced by 9 percent, Australian sales fell by nearly 10 percent to 5.6 million tons due to the flooding. Metallurgical and seaborne thermal coal shipment prices increased 43 percent per ton in Australia. The higher pricing was offset by $70 million due to the impact on EDITDA with the effects of rains and other costs. Peabody also made progress on a number of mine expansions in its Australia operations.

Earnings Growth

Peabody's net income applicable to common shareholders was $176.5 million, or 67 cents per adjusted diluted share, compared to $133.7 million or 52 cents per adjusted diluted share a year ago. The coal boom runs hot. Earnings previews for Arch Coal (NYSE:ACI), despite some production problems, expect a rise to 33 cents a share. Consol Energy (NYSE:CNX) produced 17.2 million tons of coal in its first quarter, its largest output since the end of 2008.

Thermal coal producers James River Coal (Nasdaq:JRCC) and Cloud Peak Energy (NYSE:CLD) aren't expected to reap quite the results in 2011 due to flat power generation demand. Met coal demand in Asia continues to strengthen, which bodes well for Peabody. China's and India's steel industries drove this demand for met or coking coal, which increased met coal prices in the first half of the year to $330 per ton. The steel industry in the U.S. also saw demand pick up, a rise which should continue.

The Very Long View
CEO Gregory H. Boyce reiterated his view that the coal industry is in a "global supercycle". With coal used for roughly 50 percent of electrical power generation in the U.S., it will remain a large part of the U.S. energy picture. China is expected to be a decades-long coal story, not something that will exhaust itself soon.

In the Near Term
For the near-term, Peabody expects Australian operations to recover and international demand to remain strong. The company expects Australian sales to reach 28 million to 30 million tons for 2011, part of the 245 million to 265 million tons it expects for total sales. Total EBITDA for 2011 is expected to range from $2.1 billion to $2.5 billion, with adjusted diluted earnings per share from $3.50 to $4.50.

Should Investors Buy Peabody?
The only negatives for Peabody are that its comps will be harder to beat each quarter, and as fundamentally strong as coal's story is, coal is still a commodity industry subject to swings and cycles - even within the long-term, super-bullish picture. If there's a substantial price pullback on Peabody stock, though, it could ultimately be a lucrative buy. (So you've finally decided to start investing. But what should you put in your portfolio? Find out here. Check out How To Pick A Stock.)

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