23 JulMCD: The Past, The Present,The Future

“As our predominately franchised business model continues to generate significant levels of cash, our priorities regarding the use of cash have not changed. After investing in our business, we’re committed to returning all free cash flow to shareholders over the long term, first through dividend and then through share repurchases. For the second quarter, we returned $1.2 billion to shareholders through a combination of dividends and share repurchases.” – McDonalds President Thompson

“…fortifying our position as our customers’ favorite place and way to eat and drink.”

by McDonald’s Don Thompson, President and CEO

I’d like to begin by briefly framing our performance using three lenses. The past, the present, and the future.

First the past, because it provides perspective and guides our present and future. Throughout McDonald’s history, we respectively grown both the top and the bottom lines to varying degrees across a variety of economic and competitive cycles. We have an iconic brand an outstanding system of owner-operators, suppliers and employees and superb real estate locations in nearly every market around the world. This provides a solid foundation from which we operate.

Second, the present. In second quarter we grew revenues, operating income and earnings per share, despite the ongoing impact of the challenging environment. This is truly a testament to the fortitude and resilience of our system, our sustainable competitive advantages, and the collective focus on execution at our restaurants.

And third the future. We expect the dynamics of this cycle should persist in the near-term, namely flat to declining informal eating out markets, increasingly less ability to take price, cost pressures throughout our P&L and heightened competitive activity.

Based on our recent sales trends, our results for the rest of the year are expected to remain challenged.

Our second quarter results tells story consistent with these lenses. Global comparable sales were up 1%, operating income was up 3% and constant currencies and earnings per share was $1.38, a 6% increase in constant currencies. And as we begin the third quarter, global comparable sales are expected to be relatively flat in July. Based on our recent sales trends, our results for the rest of the year are expected to remain challenged.

We remain committed to the plan to winning our three global growth priorities to optimize our menu, modernize the customer experience, and to broaden accessibility to brand McDonald’s around the world. This customer centric plan enables us to deliver an appealing experience by offering great tasting, affordable food and beverages, and clean and modern restaurants.

At the same time, we are diligently implementing thoughtful adjustments to our proven strategies and solutions when and where needed. This flexibility has enabled us to maintain or grow market share in most of our major markets around the world.

Let’s review ours results in every geographic business units, starting with the United States, where comparable sales for the quarter were up 1% and operating income was flat. We continue to appeal to our customers with an increased emphasis on new news across our menu, and an ongoing focus on everyday affordable value.

The Dollar Menu remains a foundational component of our strategy

The Dollar Menu remains a foundational component of our strategy to consistently deliver value across the menu, rather than implementing aggressive short-term discounting tactics. At the same time, our focus on enhancing core classics and offering additional premium products, continues to provide customers with even more variety and choices across day parts and price points.

Premium McWraps launched in April, the Blueberry Pomegranate Smoothie and Egg White Delight debuted in May and last month we added fresh new taste to our Quarter Pounder Burgers with three new flavorful recipes, Bacon Habanero Ranch, Lettuce Tomato Deluxe and Bacon & Cheese.

This quarter we introduce new items across all four key growth categories, chicken, beef, breakfast and beverages. Premium McWraps launched in April, the Blueberry Pomegranate Smoothie and Egg White Delight debuted in May and last month we added fresh new taste to our Quarter Pounder Burgers with three new flavorful recipes, Bacon Habanero Ranch, Lettuce Tomato Deluxe and Bacon & Cheese.

From a comparable sales standpoint, these new menu additions individually met or exceed its targeted performance levels. However, softer IEO environment and comparisons against prior-year promotion was chicken and beverage activity offset the sales driven by the new menu news. And while June comparable sales were slightly negative in the U.S., we continue to outpace the competitive set.

In June, I met with our leadership franchisees while they were in Oak Brook for one their regularly scheduled meetings. While the challenges of operating a small business today are many, it is clear that we’re aligned and focused on what’s most important and that’s the customer. It’s that commitment to remaining customer centric, along with the assertive plans and vision we have in place, that enables all three legs of the McDonald’s system to grow sales and profitability for the long-term.

Let’s shift to Europe, where comparable sales were down 10 basis points for the quarter and operating income was up to 5% in constant currencies. The U.K. and Russia continue to deliver positive results, while weak performance in Germany and France persist. The UK’s business remain solid. Second-quarter results and continued market share growth were driven by a balanced focus across value core new products, and promotional offers.

The U.K. launch blended ice beverages in June, just in time to satisfy customers’ craving for something cool and refreshing during the summer months. The lineup includes two delicious fruit smoothies, strawberry and banana and mango and pineapple, and a line of frappes including Carmel and Iced Mocha.

Inspired by the U.S., these new products expand the overall beverage lineup and further validate blended ice as a proven system solution that can be deployed across markets worldwide. Russia also delivered positive performance for the quarter on top of last year’s strong results. In addition to a focus on the Big Mac, two seasonal premium offerings, the Royal Cheeseburger and The Big Tasty with Bacon, contributed to Russia’s performance and demonstrated the strong ongoing appeal of our brand in this growth market. We expect the lower inflationary environment in Russia to continue dampening our pricing power, pressuring near-term sales momentum compared to last year.

France, comparable sales in guest count performance remain negative as the recession continues

Moving over to France, comparable sales in guest count performance remain negative as the recession continues to pressure the informal eating out industry. However, we’re growing market share by balancing value in premium products across the menu. For example, France recently added two new recipes to the popular Casse-Croute entrée and drink combo, they contributed to market share growth during the lunch day part. This value offer was complemented by a strong focus on two premium beef burgers, Le M and Le 280.

Germany negative comparable sales and traffic trends persist.

In Germany negative comparable sales and traffic trends persist. Our traffic has declined at a faster rate than the IEO industry, which also continues to contract. It’s critical that our initiatives resonate with consumers in this environment and in this marketplace. So to reestablish our momentum, we are leveraging recent consumer insights and continuing to adjust our plans.

market share improved in China, Australia and Japan, comparable sales were negative for our big three markets. Positive performance in other markets like South Africa, Singapore and South Korea partially mitigated the overall segments decline.

Let’s shift to Asia Pacific, Middle East and Africa or APMEA. Comparable sales were down 30 basis points for the quarter and operating income increased 3% in constant currencies. Although market share improved in China, Australia and Japan, comparable sales were negative for our big three markets. Positive performance in other markets like South Africa, Singapore and South Korea partially mitigated the overall segments decline.

Markets across APMEA are taking a holistic approach to stimulating demand. Across day parts there are offering limited time and innovative products alongside established price value platforms. In Australia, we continued to grow market share by balancing our focus on the core with new product introductions and promotional activities. Strong performance in 2012 including the launch of our Loose Change menu along with external pressures in 2013 from lower levels of consumer spending and high competitive activity have contributed to weaker performance.

Japan, consumers remain extremely price sensitive

In Japan, consumers remain extremely price sensitive. Comparable sales have been positive the last two months and we continue to grow share by leveraging limited time offerings like the Chicken Teritama and sharing options such as the Mega Potato to keep customers coming back to our restaurants and to build our average check.

China, comparable sales were down 6.1%

In China, comparable sales were down 6.1% for the second quarter reflecting the negative impact from avian influenza which continues to dissipate. We remain focused on leveraging promotional activities to showcase the diversity of our menu beyond chicken and strengthening our connection with customers through our ongoing brand trust campaign that focuses on the quality and the safety of our food.

We remain confident in our ability to drive future performance in China. Going forward, comprehensive plans for our key growth areas particularly beverages, the family business and the late night day part remain our top priorities.

Around the world and across our system we are focused on ensuring our strategies and tactics resonate with customers. That’s the key, the key to our performance, today and for the long term. As I mentioned earlier, our market teams continue to strategically and thoughtfully adjust their plans in response to local consumer dynamics and growth opportunities.

At the same time, we remain committed to prudently investing our capital and resources in those initiatives that will further differentiate us from the competition for the long term. We’re broadening accessibility by adding new restaurants, we’re modernizing our existing restaurants with reimages and remodels and we continue to deploy technology and convenience initiatives.

our predominately franchised business model continues to generate significant levels of cash, our priorities regarding the use of cash have not changed

As our predominately franchised business model continues to generate significant levels of cash, our priorities regarding the use of cash have not changed. After investing in our business, we’re committed to returning all free cash flow to shareholders over the long term, first through dividend and then through share repurchases. For the second quarter, we returned $1.2 billion to shareholders through a combination of dividends and share repurchases.

In closing I want to reiterate my confidence in our business and in the growth opportunities that exists. We are diligently focused on executing the proven strategies within our plan to win. We have a resilient business model and aligned and talented system and an experienced management team.

We’re leveraging these strengths and making deliberate, continued progress toward winning this battle for market share and fortifying our position as our customers’ favorite place and way to eat and drink.


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11 JanDEER Suspended from NASDAQ

The NASDAQ Stock Market (Nasdaq:NDAQ) announced that Deer Consumer Products, Inc. (DEER), which has been subject to a trading halt since August 13, 2012, will be suspended from the NASDAQ Stock Market effective January 11, 2013. As a result of the suspension, Deer Consumer Products may be eligible to resume trading in the over the counter market. The suspension is the result of a final determination to delist the Company’s shares issued by the Panel after a hearing on the matter. NASDAQ will file a Form 25 Notification of Delisting with the Securities Exchange Commission upon the expiration of applicable appeal periods.

For news and additional information about the company, please contact the company directly or check under the company’s symbol using InfoQuoteson the NASDAQ Web site.

For more information about The NASDAQ Stock Market, visit the NASDAQ Web site at http://www.nasdaq.com.

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06 NovAKS Shares Up Today

One Month Chart of AKS

AK Steel (NYSE: AKS) shares are up 6.39% after the company announced late Monday that it will increase current spot-market base prices for all carbon flat-rolled steel products by $50 per ton immediately.

“The move was consistent with our near-term bullish steel call, which was predicated on a second increase, supported by increasing raw-material prices, extending lead times and firming global prices,” analysts at Dahlman Rose & Co. wrote in a note.

Current position: Long AKS

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10 SepThree Buys: JCI, CAT, INTC

JCI Buy at $25.82
CAT Buy at $80.oo
Buy INTC at $22.00

Johnson Controls Inc NYSE:JCI is yielding 2.59% with a low pe ratio of 11.06 at the time of this publication according to TD Ameritrade. This will be a new position in JCI if the stock ever hits my strike price of $25.82. JCI has a peg ratio of .6289 which is low compared to the auto parts industry. I believe the automotive industry is on a rebound worldwide as more people in the US need new cars as the average age of cars hit a record 10.8 years old in 2011.

Worldwide demand is growing for transportation as economies are bringing more of the population into a economic level where a car or small truck may be purchased. Additionally Johnson Controls is in every facet of our lives with HVAC systems and controls, energy management and overall far reaching engineering capabilities.

The stock got hit in July, if it gets hit again before the election I am sure to pick up my first 1/4 of my target position in JCI.

Caterpillar Inc. NYSE: CAT is yielding 2.36% and has a pe under 10 at the time of this publication according to TD Ameritrade. I already own 1/4 of my target position in CAT, this will add another 1/4%. Currently Credit Suisse and The Street have their highest ratings, Outperform and Buy respectively.  CAT is undervalued with a PEG of .5631. Hopefully it will move even lower with more bad news from the world economic conditions hurting short term results. I expect CAT to trade in the low $100s once positive economic signs begin to appear.

Intel NYSE: INTC is yielding nearly three and three quarters percent. I own INTC in my trading account and my tax sheltered retirement account. I hope to add more at $22. per share for my retirement account. INTC has a low .95 peg ratio cheap compared to the industry 1.52 peg.

JP Morgan lowered its price target from $25 to $22 per share. The lagging PC sales are sure to disappoint this quarter too so a $22 price target is possible.

Next quarter with the launch of Windows 8 devices, along with the Christmas shopping season I expect INTC to bounce back to over $100 per share.

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29 AugSell 1/2 Position In WMT

It’s been a long good run with WMT purchasing 1/4 of my holdings on 1/22/09 for $48 and another 1/4 on 4/24/09 for $47.90. That’s an average of 50%+ return. Time to take a little of this off the table. I’m leaving half my position in tact and may consider buys and sells in the future.

Why am I selling half?

1. The stock appears it is running out of gas with major resistance at $75, it could pull back to the $60 or $65 level. But if it breaks $75 that would be bullish.

2. Walmart was range bound bouncing from $50 to $55 until the fall of 2011. Now with a bounce to the mid to low $70, booking a 50% profit makes sense.

3. PEG ratio of 1.7 is high. Stock appears fully if not over valued compared to the industry PEG of 1.1.

4. Earnings growth has outpaced top like sales growth. Not sustainable.

5. Revenue per employee is only average for the industry $209K

Overall I like WMT and on a pullback to the low $60s, I might add to my position. As of now, I’m happy to book my 50% profit.

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14 AugIs DEER Fed Up with NASDAQ?

According to an AP article, Chinese companies are pulling out of US stock markets amid complaints about price, and accounting scrutiny. This may include DEER, a NASDAQ small cap appliance maker I invested in earlier this year.

This was my first foray into the Chinese market. Perhaps my last if politics and attacks from short sellers are the norm.

To assist with making US markets whole the article reports that an unnamed Chinese business magazine said a state bank has provided $1 billion in loans to help companies with listings abroad move them to domestic exchanges.

The withdrawals follow accusations of improper accounting by some companies and a deadlock between Beijing and Washington over whether U.S. regulators can oversee their China-based auditors.

DEER may be pulling out of U.S. markets because their low share price fails to reflect the strength of their business. Withdrawing also will save DEER money because it eliminates the high cost of complying with the SEC.

Source: Chinese companies pull out of US stock markets

DEER continues to be under attack by Alfred Little. In his most recent article, “Deer Consumer Products Shares Halted After Factories Idled” he continues to accuse DEER of lying to it’s investors.

DEER had filed a lawsuit against Alfred Little earlier this year. There was a motion to dismiss that lawsuit in the latest 10Q from the company, other than that no other information is available about DEER and its lawsuit against Mr. Little.

Mr. Little shows photos of a closed facility he claims is DEERs. I asked, “What if DEER has a second facility? DEER claims it no longer does non-domestic manufacturing and is totally focused on the domestic market. It would be logical to shut down a facility.”

As of this writing Mr. Little has failed to respond.

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13 AugDEER Halted

The NASDAQ Stock Market announced that trading was halted today in Deer Consumer Products, Inc. (NASDAQ: DEER) at 7:00:12 a.m. Eastern Time for “additional information requested” from the company at a last price of $2.26.

Trading will remain halted until Deer Consumer Products, Inc. has fully satisfied NASDAQ’s request for additional information.

No further information is available. When visiting NASDAQ’s website, the halt on DEER is not mentioned. Only positive sentiment from the community. Hope this isn’t a misled community.

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09 AugDeer Affirms 2012 Financial Guidance

Deer Consumer Products, Inc. Announces Second Quarter 2012 Financial Results, Affirms 2012 Financial Guidance

Anticipates favorable market conditions in China for continued growth in 2012
Affirms 2012 Financial Guidance
Shifts focus entirely to the China domestic market

Deer Consumer Products, Inc. (Nasdaq: DEER) (website: http://www.deerinc.com/), a leading provider of “DEER” branded household consumer products to Chinese consumers and a leading vertically integrated manufacturer of small household and kitchen appliances for global customers, announces today financial results for the second quarter ended June 30, 2012.


Our revenue for the three months ended June 30, 2012, was $45.0 million, which was consistent with our results for the three months ended June 30, 2011. The average selling prices of our products increased 150% in the second quarter of 2012 compared to our average selling prices in the second quarter of 2011. The increase in our selling prices conforms to our strategy of maintaining healthy profit margins across all of our product lines. We also increased our sales to the China domestic market to $45.0 million for the three months ended June 30, 2012, a 54% increase from $29.2 million in the same period of 2011.

We shifted our growth strategy to focus exclusively on China domestic markets, which offer higher profit margins than international markets. As a result, we reported no sales in South America, Asia, Europe, Middle East, Africa and the US in the quarter ended June 30, 2012. We are also transforming our business to focus on creating and marketing our own brand domestically.


Our gross margin increased slightly to 29.2% for the three months ended June 30, 2012, compared to 29.1% for the same period of 2011. Our gross margin is higher in the China domestic market compared to the export market because products generally sell at much higher prices at China retail and wholesale outlets than in international markets. We also are continuing to improve the efficiency of our manufacturing operations and further benefitting from economies of scale by producing motors and other primary components of our products in-house.


Selling, general and administrative expenses for the three months ended June 30, 2012, were $5.6 million, an increase of $1.7 million, or 42.3%, from $3.9 million for the same period of 2011. Selling expenses for the three months ended June 30, 2012, increased by 44.3%, or $1.3 million, in comparison to the same period of 2011 due to a significant increase in advertising expenses. Associated selling expenses include advertising to expand our market share, increase brand awareness and to help generate the significant increase in sales. We retained Han Han, a famous writer in China, as our product spokesman. We also retained Shanghai Dingxiang Advertising Company to promote our dehumidifier products in Beijing, Shanghai, Hangzhou and Nanjing. The expenses incurred for our factory representatives and in-store promoters who promote our products directly to consumers at retail locations remained minimal.

Q2/2012 NET INCOME Second quarter net income was $5.7 million, a decrease of 22% from Q2/2011. Fully diluted earnings per share were $0.17, an EPS decrease of 22% from Q2/2011. The decrease in net income was primarily due to the increase in our advertising expenses incurred to expand our market share and increase brand awareness.


As of June 30, 2012, we had $9.40 million in cash and equivalents on hand. Our principal liquidity demands are to help increase our sales in China by adding capacity, to improve sales distribution infrastructure, to purchase inventory and for general corporate purposes. We anticipate the cash we have on hand as of June 30, 2012, as well as the cash that we will generate from operations, will satisfy these requirements.


Bill He, Chairman & CEO of Deer, commented: “Deer is pleased to report its financial results for the second quarter of 2012. In 2010, Deer entered China’s domestic markets with a strong push by putting its ‘DEER’ branded products on the shelves of retail locations across China. In 2012, Deer is continuing to expand its store presence across China and is adding additional in-store promotional staff to further enhance sales. Deer currently has access to approximately 4,000 retail locations across China and has developed a well-recognized brand by working with various retail channels.

We believe China remains the world’s largest and fastest growing consumer retail market and continues to experience strong domestic demand for small household appliances. There are approximately 35,000 retail locations across China that Deer could potentially penetrate. Deer has significant growth potential in China.”


Mr. He continued, “Chinese consumers have experienced relatively strong positive real income growth in recent years. We believe rising standards of living will result in an increased demand for quality consumer goods, such as small appliances. We plan to fully take advantage of this market opportunity by targeting our high quality products to these middle income Chinese consumers, whose numbers continue to grow, and by providing exceptional customer service.

We expect our higher gross margins to continue over time as most of our revenue is being derived from the higher margin China domestic markets. We believe that we will be able to manage SG&A growth along with our significant revenue growth to maintain and enhance net profit margins.”


Mr. He continued, “In the short-term, we will continue building the solid reputation of our ‘DEER’ branded products to be the number one food preparation appliances brand by 2013. We also plan to focus sales of our high margin products, including our dehumidifier, vacuum cleaner, water filters and air purifier, to first and second tier Chinese cities that are experiencing strong economic growth.

Over the course of the coming quarters, we plan to position ourselves as a high-end innovative brand in China and expand our ‘DEER’ brand to include complete integrated household appliance systems for the kitchen and bathroom.

We have also made significant progress on our Wuhu manufacturing plant facility, by breaking ground to complete our new manufacturing plant. We are pleased with our construction progress.”


In 2012, Deer anticipates revenues from the high margin China domestic sales will continue to surpass export sales. Deer provides 2012 revenue guidance of between $270 and $290 million, net income guidance of between $45 million and $47 million, and targets EPS (Earnings per Share) between $1.37 and $1.42.


As disclosed previously, Deer’s entire management team has voluntarily entered into 3-year share lockup agreements, which prohibit them from selling any shares to the general public through at least 2013. The lockup agreements represent approximately 47% of Deer’s entire outstanding shares. Deer management’s vested interests are aligned with those of Deer’s public shareholders. Deer has been led by its original founders since the inception of its operating business 17 years ago.

About Deer Consumer Products, Inc.

Deer Consumer Products, Inc. is a NASDAQ Global Select Market listed U.S. company with its primary operations in China. Deer has a 16-year operating business as well as a strong balance sheet. Operated by Deer’s founders and supported by more than 100 patents, trademarks, copyrights and approximately 1,000 staff, Deer is a leading provider of “DEER” branded consumer products to Chinese consumers and a leading vertically integrated manufacturer of small home and kitchen appliances for global customers. DEER’s product lines include series of small household and kitchen appliances as well as personal care products designed to make modern lifestyles easier and healthier.

Safe Harbor Statement

All statements in this press release that are not historical are forward-looking statements made pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. There can be no assurance that actual results will not differ from the company’s expectations. You are cautioned not to place undue reliance on any forward-looking statements in this press release as they reflect Deer’s current expectations with respect to future events and are subject to risks and uncertainties that may cause actual results to differ materially from those contemplated. Potential risks and uncertainties include, but are not limited to, the risks described in Deer’s filings with the Securities and Exchange Commission.

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07 AugDEER not for the faint of heart

Last Quarter Deer Consumer Products Inc. shares (DEER) reported a 35% increase in first-quarter profit and reaffirmed its 2012 earnings and revenue forecasts, citing a continually rising standard of living in China.

This quarter DEER hasn’t reported yet. That means we should get a report sometime this week.*

Schwab Earnings Report rates DEER a HOLD. In it’s report, Schwab states that Deer has an Actual P/E for TFQ of 1.8. That compared to these sector comparisons.: Appliance & Tool 12.4, Consumer Cyclical 16.4 and S&P500 14.6 makes DEER a steal.

Market Edge Second Opinion (R) upgraded the stock to Neutral from Avoid on 4/2/12 after DEER had reported.

What’s with the Dividend?

According to Reuters dated 28 May 2012, DEER had a 6.73% dividend yield. Yet most publications are now reporting that DEER does not pay a ‘regular’ dividend. That’s strange.

Reuters reports a P/E of 2.51 However here are the payout ratios from each year

12 Mo December 09 -0.00%

12 Mo December 10 – 0.00%

12 Mo December 11 – 16.88%

Most Recent Quarter – 12.52% with a 3 year average of 5.63%

However S&Ps report dated August 4, 2012 reports Dividend Yield as Nil.

*Quarterly Report Due This week
Deer files quarterly report with the SEC within 40 days after the end of each quarter. Deer’s quarters end on March 31, June 30 and September 30.

Investing in DEER is not for the faint of heart. This stock could go to zero, especially if the acusations of Alfred Little that DEER keeps a set of fake books comes true. However if indeed DEER is under attack form Al’s little band of Merry Shorters and the company reports are in fact accurate, then watch out, this stock could take off to $10 per share.

It will be interesting to see which way this stock goes. As for me I’m holding a small position for now. After all, I don’t want to risk being road kill, but an upside run on this stock will be a nice reward.

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28 JunBullish on BTU

I’m Bullish on BTU, a stock that is way oversold. Credit Suisse today came out with a 12 month target of $44 per share and an Outperform rating. The 52 week price range is 61.37 – 21.12. The adjustment came after Credit Suisse attended the annual investor day in New York.

Here is the statement from Credit Suisse:

While near-term global uncertainty continues, we maintain our view that Peabody represents the best way to play the
attractive long-term global secular trends for thermal and met coal demand. We believe the shares look compelling for longer-term investors, trading at only 4.0x our 2013 EBITDA estimate and 3.6x our 2014 EBITDA estimate. Our $44 target price reflects 5.4x our 2014 EBITDA estimate. Maintain Outperform.

Here are is the Official Statement from Peabody Energy:

“We have multiple opportunities in coming years across all key levers of value creation: production growth, price upside, cost containment and valuation expansion,” said Peabody Energy (NYSE: BTU) Chairman and Chief Executive Officer Gregory H. Boyce. “There are bright spots amid recent market headwinds, including the recent increase in quarterly seaborne metallurgical coal prices, accelerating China coal imports and signs of stabilizing U.S. coal supply-demand fundamentals. Longer term, rising electricity generation and steel production required to fuel growing economies of the Asia-Pacific region will continue to drive sustained increases in global coal demand.”

“Peabody’s superior gross margins and strong cash flows allow us to continue to invest in growth projects while also strengthening the balance sheet,” said Boyce. “Being cognizant of macro concerns, however, we are further reducing our capital expenditures and extending the timing of selected mine projects. During the second quarter, we also took the opportunity to opportunistically repurchase more than $240 million of bonds and repurchased $100 million of Peabody shares.”

Boyce said that the company was completing a number of late-stage projects in Australia while re-evaluating the timing of select emerging projects. The company is completing the Millennium Mine expansion and is beginning to mine first coal at the Burton extension. At North Goonyella Mine, the implementation of Longwall Top Coal Caving technology is on target to begin adding expanded volumes in late 2013. The Metropolitan Mine modernization is on schedule but the completion of the expansion is now targeted for 2014 to 2015 to enable higher volumes than earlier projected. The company is planning on undertaking additional evaluation before commencing development on the Wambo Open-Cut expansion and Codrilla Mine, with startup timing to be determined.


With the modified timeframes, Peabody now targets Australian coal production of 45 million to 50 million tons by 2015 to 2017, up from 25 million tons in 2011.


“China’s coal imports are accelerating in recent months, and we project they will reach a record 285 million tonnes in 2012 as the country increasingly looks to the seaborne coal markets,” said Boyce. “We expect global metallurgical coal use to increase 25 percent by 2016, translating to an additional 250 million tonnes of demand growth, with the bulk of increases led by China and India.”

The recent BP Statistical Review of World Energy reports that coal consumption grew by 5.4 percent in 2011 – the fastest-growing major fuel in the world.

Coal now accounts for 30.3 percent of global energy consumption, the highest share since 1969.

Australia is expected to remain the dominant seaborne coal supplier, providing the majority of growth in global seaborne metallurgical coal, high-value pulverized coal injection (PCI) and high-CV thermal coal products.


The integration of Peabody Energy Australia PCI (formerly Macarthur Coal) into the company’s global platform is progressing well, with operational improvements and synergy targets on track for the world’s largest seaborne supplier of low-vol PCI coal.

“PCI’s coal deposits are stronger than we had expected in both quality and quantity, and this delivers support for the life of existing operations as well as a strong development pipeline for new mines,” said Boyce.


Boyce said that while the U.S. coal market has been impacted by a weak economy and low natural gas prices, the outlook for coal has strengthened following the recent sharp declines in U.S. shipments, rise in natural gas prices and seasonal drawdowns in utility stockpiles.

Peabody continues to project that U.S. coal demand will decline 100 million to 120 million tons in 2012.

“Coal supply-demand fundamentals appear to be coming back into balance, with May coal shipments down 145 million tons on an annualized pace and coal inventories beginning their seasonal drawdown,” said Boyce.

Recent improvement in natural gas prices point to Powder River Basin and Illinois Basin products being the first to rebound for coal-fueled generation.


“Peabody will continue to evaluate U.S. production levels as the year progresses,” said Boyce. “We are very well positioned in the United States, with 2012 production fully priced and nearly 70 percent of 2013 volumes priced based on current production levels.”

Peabody continues to advance a number of U.S. export growth initiatives to meet the increasing global demand for seaborne coal.

U.S. thermal exports could grow to between 150 million and 170 million tons within five years, and Peabody is developing a sustainable large-volume export business from the West, Gulf and East coasts to capture emerging opportunities. Peabody shipped U.S. exports of 6.6 million tons in 2011, and the company is targeting 10 million tons for 2012.

Source: Peabody Energy

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