A relatively positive earnings report from Peabody Energy (BTU) sparked a rally in coal stocks Monday.
The company reported income from continuing operations of 46 cents per share on revenue of $2.06 billion, compared to estimates for 34 cents per share on revenue of $1.96 billion. The company reported EPS of $1.00 per share on revenue of $1.98 billion a year ago, so it's hard to look at these numbers as good, but for the beaten-down coal industry, less bad than expected is a positive these days.
Monday's rally sent several of the big names in the industry higher. Peabody crossed above its 200-day moving average, while CONSOL energy (CNX) continued its recent climb. Arch Coal (ACI) and Alpha Natural Resources (ANR) also rose on the day.
The industry has suffered as cheap natural gas from the fracking boom has displaced coal for electricity generation at a number of sites across the U.S. Gregory Boyce, Peabody's chairman said the environment remains “challenged” but several factors including increased infrastructure spending in China and increasing use of coal for power generation in Europe indicate that markets may be stabilizing.
Peabody raised the low end of its 2012 sales forecast by 10 million tons and now expects to sell between 240 million and 250 million tons of coal in 2012. Earnings are expected to be $2.10 to $1.30 per share, topping analysts' estimates for $1.86 on average.
The company also announced that it has identified $100 million in potential annual savings through job cuts, lower spending on outside services and reducing the number of contractors it uses. The locations that could see cuts were not identified.
The Market Vectors Coal ETF (KOL) was up almost 3% in early-afternoon trading Monday. Recent support for the ETF has been between $22 and $23. A bull-put spread below that level may be an attractive way to participate in this recent rally without making too much of a gamble on a still-struggling industry.