Peabody Energy Corporation (NYSE:BTU) reported operating EPS of $0.51 this morning, above consensus estimates of $0.34. Peabody Energy Corporation (NYSE:BTU) beat on the top line and the bottom line. The strong earnings quarterly earnings and revenue was driven by higher shipments and a QoQ improvement in costs across all regions. Net debt was $5.7b in 3Q, vs. $5.9b in 2Q. Shares of Peabody Energy Corporation (NYSE:BTU) are soaring on the earnings, up 12.40% at the time of this writing.

peabody energy

In Australia, Peabody Energy Corporation (NYSE:BTU) is settling Q4 metallurgical coal shipments, largely in line with benchmark settlements of $170/tonne for hard coking coal and $125/tonne for low-vol PCI . For 2012, Peabody is targeting net coal sales of 13-14 million tons. Seaborne thermal volumes are targeted for 11-12 million tons in 2012.

Sales volumes

Midwestern U.S – 7.0 million tons, versus. 7.0 million tons in prior quarter
West – 44 million tonsvs. 37 million tons in the prior quarter
Australia – 8.5 million tons vs. 8.2 million tons in prior quarter
Trading – 7.1 million tons,versus 5.2 million tons in the prior quarter
Total – 66.6 million tons, verus  57.4 million tons in the prior quarter

China’s steel production has begun to increase in October. Chinese mine closures are impacting domestic production; rail deliveries are down 12% y/y. European coal generation is up 14% y/y. US coal stockpiles declined 70% more than normal during 3Q, due to a hotter than normal summer. Management expects Global Seaborne thermal coal demand to increase by 100 million tons in 2012, with continued increases in 2013. Peabody expects 10-15% growth for Seaborne net coal demand in 2013.

Citigroup analysts note some of the negatives regarding the earnings.

1) Australian net sales of 3.5 million tons were slightly below their estimate and last quarter sales of 3.6 million tons. 2) Fourth quarter volumes will be negatively impacted by two planned long-wall moves, but the implied earnings guidance stands above consensus .

Additionally, Peabody Energy Corporation (NYSE:BTU) guided FY12 adjusted EPS of $2.10-2.30, which implies 4Q adj. EPS of 18-38c (DBe/ consensus of 12c/21c). Results reflect two 4Q LW moves, lower US volumes and lower realized pricing & higher royalty rates in Australia.

FY12 total shipments guidance narrowed to 240-250m, including Australian shipments of 31-33m tonnes (was 31-34m tonnes), and US volumes of 188-192m tons (was 185-195m tons).

Disclosure: No position