Peabody Energy (NYSE: BTU) reported Q4 EPS of ($9.27), $0.59 worse than the analyst estimate of ($8.68). Revenue for the quarter came in at $1.31 billion versus the consensus estimate of $1.36 billion.

Core priorities for 2016 include:

• Driving continuous improvement in safety, productivity and costs. In 2015, Peabody transformed its operations to respond to difficult market conditions. The company set a new record for safety, with a 13 percent reduction in the global safety incidence rate to 1.25 per 200,000 hours worked for employees and contractors. In the U.S. and Australia, Peabody improved costs by 5 percent and 24 percent, respectively, and gross margins across four of the company's five operating segments averaged 26 percent. 2015 capital spending declined 35 percent, and extensive efforts were advanced to streamline the organization leading to a 22 percent reduction in SG&A expenses, the lowest levels in nearly a decade. Given ongoing market challenges, the company continues to drive cost improvements at all levels of the organization.
• Preserving liquidity while reducing debt. The company continued to preserve liquidity in 2015 by completing a bond offering, modifying its credit agreement, reducing costs and lowering capital spending. Peabody and its advisors are currently in discussions with debt holders to evaluate financial alternatives, including potential debt exchanges, debt buybacks and new financing, to preserve liquidity and delever the balance sheet. Peabody also has a number of committed obligations that expire or meaningfully decline in the next two years:
  • The company's final PRB reserve installment of approximately $250 million is scheduled to be paid in the second half of 2016. The payment is related to the company's last lease-by-application process in 2012. As a result of investments in prior years, Peabody's PRB reserves represent more than 25 years of current production, which provides a competitive advantage relative to other producers.
  • Peabody's existing currency and fuel hedges decline in 2016 and expire by the end of 2017. As these positions expire, the company expects progressively lower cash settlements in 2016 and 2017 relative to realized 2015 hedge losses of $436.8 million.
  • The company proactively assigned excess Australian port capacity to another producer, which is expected to reduce infrastructure costs by approximately $60 million through 2020. In addition, Peabody recently amended contracts to reduce certain U.S. transportation and logistics costs expected to be due in early 2017. In connection with these amendments, Peabody will realize a net reduction of approximately $45 million in estimated liquidated damage payments that otherwise would have become due in early 2017.
  • The company recently amended its 2013 agreement with the United Mine Workers of America, improving Peabody's expected 2017 cash flows by $70 million while deferring the 2016 payments over 10 months.
• Reshaping the portfolio to unlock value. Peabody announced the planned sale of its New Mexico and Colorado assets for $358 million in November, and the purchaser is currently arranging financing. Peabody also announced plans to divest its interest in the Prairie State Energy Campus for $57 million. In 2015, the company realized cash proceeds of $70 million related to its ongoing resource management activities through the sale of surplus land and coal reserves. Peabody continues to evaluate its portfolio to target the best markets, with a filter that includes strategic fit, value consideration, growth and cash requirements as the company further emphasizes its core mining assets in the PRB, Illinois Basin and Australia.

OUTLOOK

Peabody has lowered 2016 U.S. sales guidance by 18 to 28 million tons below 2015 levels. As a result, projected 2016 U.S. production is now fully priced, with 2017 production 35 to 45 percent unpriced based on targeted 2016 production levels. After incorporating deferrals to later periods and a change in customer mix, Peabody now has 116 million tons of PRB priced for 2016 delivery at an average of $13.30 per ton.

2016 U.S. revenues and costs per ton targets primarily reflect a reduced proportion of PRB sales compared to 2015. In the PRB, the company is working to optimize production levels and mix at the North Antelope Rochelle Mine to maximize margins. 2016 guidance includes the contributions from mines in Colorado and New Mexico, for which a sales agreement is in place.

In Australia, Peabody is lowering targeted metallurgical coal production levels in 2016 to reflect operational changes made in 2015, which is expected to result in lower PCI sales. The company also plans to place the Burton Mine on care and maintenance by the end of 2016.

Peabody expects first quarter Adjusted EBITDA to reflect current reduced seaborne coal pricing, lower PRB volumes, the impact of planned longwall moves at the Wambo and Twentymile mines, and the realization of fuel and currency hedges that are expected to improve each quarter as the year progresses. While cost improvements continue to remain a priority for Peabody, current pricing levels are a strong headwind. The company also expects to have an approximately $70 million benefit to continuing operations from the recently amended 2013 agreement with the United Mine Workers of America.

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