Peabody (BTU) to Cut Jobs to Cope with Dismal Coal Demand

Coal producer Peabody Energy Corporation's BTU management has decided to reduce nearly 250 corporate and regional positions in the coming months to create a leaner organization and reduce costs.  The workforce reduction is expected to be completed later this year and slash cost by $40 million to $45 million annually. Management though regretful of taking this hard step felt it was essential to remain competitive in the current environment.

The softness in coal demand is taking a toll on this company.  Peabody Energy incurred losses in the last five consecutive quarters. The company has shed nearly 32% of its traded price since it reported a wider-than-expected loss in the first quarter of 2015 to close at $3.06 yesterday.

Peabody Energy has been implementing measures to trim operating cost in the face of falling coal prices and lackluster demand. In Apr 2015, two top officials of Peabody decided to take a voluntary 10% cut in their respective pay to lower the operating cost of the company. The pay reduction is effective from May through December this year.

Coal demand has been suffering in the U.S. due to the implementation of stricter regulations in the power sector. Lower natural gas prices have further eaten into the market for coal. As a result, U.S. coal usage in 2015 is expected to go down by nearly 80 million tons from 2014 levels, hurting the prospects of coal miners.

The company adjusted its coal sales volume accordingly, now targeting total sales of 235–255 million tons (earlier 245–265 million tons) including 180–190 million tons (earlier 190–200 million tons) in the U.S.

Recently, the company also decided to lower its metallurgical coal production by nearly 1.5 million tons per year from its North Goonyella Mine in Queensland, Australia. This move will result in employee and contractor reductions of 35% to 40% at the mine.

Peabody is not the only coal miner resorting to workforce reductions. In May 2015, Alpha Natural Resources, Inc. ANR notified 439 employees at Rockspring Development's Camp Creek Underground Mine and Processing Plant in Wayne County, WV, regarding the idling of these facilities based on current market conditions.

Peabody currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the same space include CONSOL Energy Inc. CNX and Rhino Resource Partners LP RNO.  Both these stocks hold a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>