Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) was up 35% to US$130.5 million in the second quarter of 2004, and up 24% to US$240.3 million for the first half. Net income for the quarter totaled US$41.5 million compared with a loss of US$1.3 million for the previous second quarter. Net income for the first half totaled US$64.1 million, revenues rose 33% for the quarter and 24% for the first half, on record sales volume.

"Peabody's operations are responding very well to the robust market conditions, allowing management to again raise the 2004 financial targets," said Peabody Chairman and Chief Executive Officer Irl F. Engelhardt.

"Peabody expects the coal markets to remain strong due to favorable economic conditions around the world, low customer stockpiles, shortages of competing fuels and construction of a number of new coal-fueled generating units."

Revenues were up 33% for the quarter to US$920.1 million and up 24% to US$1,708 million for the first half. Peabody’s latest purchases – the two metallurgical coal mines in Australia and the Twentymile Mine in Colorado - contributed US$90.4 million in revenue.

Operating profit rose 61% to US$48.9 million for the quarter and 32% to US$85.8 million for the first half. Second quarter results were driven by higher utilization of Peabody's installed capacity, which overcame U.S. rail and Australian port congestion that constrained shipments by more than 1 million tons and reduced EBITDA by approximately US$7 million to US$8 million.

The company recorded a second quarter 2004 tax benefit of $16.4 million, largely a result of the Twentymile Mine acquisition. The deal improved the outlook for the utilization of net operating loss carryforwards, resulting in a positive adjustment to the deferred tax liability. In 2003, net income was impacted by US$32.3 million in pre-tax early debt extinguishment charges for the second quarter and US$53.5 million for the first six months, as well as US$10.2 million in net cumulative effects of changes in accounting principles in the first half of 2003.

"Peabody continued its rapid pace of achievements in the second quarter, building upon our growth platform and strategy to manage safe, low-cost operations," said executive vice president and chief financial officer Richard A. Navarre.

"On the heels of our successful debt and equity offerings in March, we closed on two acquisitions, signed a definitive agreement for a third acquisition, acquired a major reserve tract in the Powder River Basin, and completed an important upgrade at our largest mine. Our second quarter performance is particularly strong, considering that more than 90% of our 2004 sales were priced during softer market conditions and transportation issues reduced our shipments."

Gross margin from U.S. mining operations increased 27% for the quarter and 18% through six months, to US$166.4 million and US$311.2 million, respectively.

Eastern U.S. per-ton margins increased 27%, as strong second quarter revenues more than offset increased costs. These were related to coal purchased to allow produced coal to access higher-value markets; a change of mix to higher-priced coal products; increased processing to upgrade steam coal to metallurgical quality; and increased diesel fuel and steel expenses. Western margins also improved, led by contributions from the highly productive Twentymile Mine and high capacity utilization in the Powder River Basin that overcame a planned outage to increase throughput at the North Antelope Rochelle Mine.

During the second quarter, Peabody was the winning bidder for more than 297 million tons of high Btu, low sulfur coal reserves in the Powder River Basin. The winning bid was 92 cents per mineable ton for some of the lowest sulfur coal reserves in America, with a productive overburden-to-coal ratio.

Capital expenditures totaled US$115.9 million in the first half, compared with US$91.9 million in the prior year. Peabody continues to target 2004 capital expenditures of US$280 million to US$300 million, including the 2004 payment related to the acquisition of Powder River Basin reserves and capital for the recently acquired mines.

Peabody’s outlook predicts strong economies in the United States and other industrialized countries continue to create increased demand and higher prices for all forms of energy.

“Global coal supply/demand fundamentals remain very tight,” Peabody said in a statement. “Coal demand in China, India and Pacific Rim nations for electricity generation and steelmaking is strong due to the construction of a number of new coal-fueled generating plants and high utilization of steelmaking capacity. Coal mines, ports and rail systems in a number of industrial countries are operating near capacity. Based upon published data, international spot coal prices for thermal and metallurgical coals are well above prior-year levels.”

In U.S. electricity markets, Peabody estimates the capacity utilization of coal-fueled generating plants is at high levels in the first half of 2004, despite a number of plants undergoing major repairs and the installation of emissions control equipment.

Peabody estimates that U.S. coal demand has risen approximately 3 to 4% for the first six months, while shipments from U.S. mines have increased by approximately 2%. Coal inventories at U.S. generators are estimated to be approximately 15 to 20% below prior-year levels and at their lowest mid-year point in more than five years.

Increased shipments are occurring in the Western U.S., while Appalachian shipments are declining due to permitting, geologic and financial issues. Coal's low relative cost structure continues to give it a competitive edge over natural gas, which remains in short supply and is priced approximately five times coal's delivered cost per million Btu. Sulfur dioxide allowance prices have risen to more than US$600 per ton as customers utilize more medium sulfur and high sulfur coals to replace lagging Appalachian coal supplies.

Longer term, the development of new coal plants continues to be strong around the world. Peabody quoted industry research, more than 1,000 units are in various stages of development outside of the United States, representing another 382,000 MW of generating capacity. A U.S. Department of Energy report outlines more than 94 new U.S. coal plants proposed, representing 62,000 MW of electricity and $72 billion in investments. In addition, several major acquisitions of coal gasification technologies have recently been made by large entities, and Peabody believes coal gasification carries bright long-term development potential and is an important step toward energy independence for America and other coal-rich nations.

Overall, the company believes that both the near-term and long-term outlooks for the coal markets are very favorable.

Peabody plans to produce 200 million to 205 million tons in 2004 and is targeting third quarter EBITDA of US$140 million to US$150 million. Full-year 2004 EBITDA targets are now US$540 million to US$565 million, a 30% to 35% improvement over 2003.

Peabody said these new targets assume steady improvements in transportation performance throughout the year, and strong economic conditions in the U.S. and other industrialized nations.