Wednesday, July 29, 2015

Peabody Second Quarter Results

Peabody announced results yesterday. Revenue was down 13% quarter over quarter but costs were down less, resulting in "adjusted EBITDA" falling 44% from the first quarter to $87 million. That is less than quarterly interest expense of $119 million, resulting in a decline in interest coverage ratio from 0.95 in Q1 to 0.73 in Q2.

Note that Peabody's results actually lag the declining thermal coal prices because the company contracts prices with customers to some degree in advance. The remainder of 2015 prices have already been agreed upon, for example, although they may likely average lower than the prices that were realized in Q1 and Q2.

The 4.75% note traded at 10.5 cents - that's a current yield of 45 percent! Own the bond for free after a little over two years if it keeps paying coupons.

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