We issued an updated research report on
) on May 9, 2014. The company had reported weaker year-over-year
results for the first quarter of 2014. Underlying earnings per ADR
(American Depositary Receipt) dropped 33.9% year over year to 40
cents, while revenues decreased 10.7% year over year to $9.5
billion. The decline resulted from lower prices for most of the
Due to its international presence, the company is exposed to
various geopolitical, social as well as economic risks. Negative
impacts from foreign currency transactions also hamper the results.
Additionally, being a cyclical stock, Vale is largely influenced by
economic activities and market movements. Moreover, competitive
pricing and the drive to improve quality, product diversity and
reliability raise operational costs, adversely affecting the
However, Vale has been increasing its production volumes for the
past few quarters. In the reported quarter, the company achieved
record production of iron ore and pellets. The production of coal
also increased year over year, led primarily by an improved
production at the Moatize mine. The company intends to keep
expanding its production levels in the near future, driven by
improvement in its mines, especially Carajas.
In addition, the company has also been endeavoring to cut costs,
in order to maintain high margins. In first-quarter 2014, Vale's
selling, general and administrative (SG&A) and research and
development (R&D) expenditure reduced by 20% and 15%,
respectively. The company expects stoppage costs to drop 50% in
With a market capitalization of $68.2 billion, Vale currently
carries a Zacks Rank #3 (Hold). Some better-ranked stocks worth
considering in the industry include
Kumba Iron Ore Ltd.
ArcelorMittal South Africa Limited
). All these stocks hold a Zacks Rank #2 (Buy).
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