Did Peabody Energy Corporation’s (BTU) Q3 Results Impact The Coal ETF? [Market Vectors-Coal ETF]

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October 23, 2014 4:41pm NYSE:KOL

coalMost commodity producers put great effort into Q3, as sluggish demand from key consuming markets, a stronger dollar and the rise of alternative energy space marred the appeal of commodities.

The trend was prevalent from agricultural producers, to precious metals, and industrial resources with the last being thrashed by the manufacturing slowdown in one of the largest economies, China, and the Euro zone. One such commodity hit by these trends is undoubtedly coal.

The trend will be better understood if we analyze the coal companies’ earnings in detail. On October 20, Peabody Energy Corporation (BTU) – the biggest U.S. coal producer – reported its Q3 earnings before the market opened. The company posted a loss per share of $0.59, narrower than the Zacks Consensus Estimate of a loss of $0.66 per share. However, this was a huge decline from the year ago quarter as BTU posted earnings of $0.05 per share in the year-ago quarter.

Peabody’s quarterly revenues of $1.72 billion declined 4.1% year over year but surpassed the Zacks Consensus Estimate of $1.64 billion by 4.9%. The year-over-year decline in sales volumes in the reported quarter and lower realized prices of Australian tons sold led to the yearly deficit in revenues.

Despite posting better-than-expected numbers, the company dampened analysts’ mood on the guidance front. The company slashed the full-year capital spending projection to $200–$220 million from $210–$250 million. Also, Peabody expects 2014 adjusted EBITDA in the range of $765 million to $815 million and loss per share of $1.48 to $1.38 per share.

Per Bloomberg, analysts expected Peabody to post $198.9 million in EBITDA in Q4. But the company’s latest mid-point guidance of $183.7 million fell short of that expectation. However, the company indicated that a jam in the railroad space is disrupting sales volume.

Market Impact

Though top and bottom line beat estimates, a downbeat guidance came as a shock to the market as it pushed shares of BTU down over 5% in the key trading session. However, its shares gained some strength (up 0.1%) after hours (read:Coal Stocks Post Mixed-Bag Q2, KOL ETF in Focus).

Peabody has decent exposure in Market Vectors Coal ETF (NYSEARCA:KOL). Interestingly, though Peabody shares were punished following its earnings release, KOL shares nudged up 0.6% on October 20. Below, we have highlighted the fund in detail for those curious about how the broad industry has been holding up following this bellwether’s report:

KOL in Focus

Launched in January 2008, KOL tracks the Stowe Coal Index, providing exposure to the companies related to the coal industry. Even though this index has a global focus, nearly 38.6% of its investments are directed toward the U.S. companies, followed by China with a 22.6% share.

KOL has amassed an asset base of $147.1 million and charges 59 basis points in fees annually. This fund holds 50 stocks and the top 10 companies hold 60.1% share of total net assets. The in-focus Peabody takes up the sixth position in the portfolio with about 5.6% of the total assets.

The fund is currently trading a little higher than its 52-week low which leaves room for a rally if the broad trends take a positive turn. However, with China re-establishing a tariff on coal imports to uphold the interest of domestic coal producers in early October, the outlook for the space looks murky. The fund has lost about 17% so far this year (as of October 20, 2014).

This article is brought to you courtesy of Zacks.

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