BHP Billiton FY14 Earnings Improve Y/Y, to Demerge Assets - Analyst Blog

BHP Billiton Limited ( BHP ) reported impressive results for fiscal year 2014 (ended Jun 30). The company's net income grew 18.8% year over year with earnings coming in at $5.18 per American Depositary Share (ADS). The bottom-line reflects an increase of 23.3% over the year-ago earnings of $4.20, but lagged the Zacks Consensus Estimate of $5.26.


BHP Billiton Limited generated revenues of $67.2 billion, climbing 1.9% year over year due to a 9% increase in the yearly production volumes. While production of iron ore, copper, petroleum, coal, alumina and manganese alloys increased, output of manganese ore, nickel and aluminium declined year over year.

Iron ore and metallurgical coal production increased 20% year over year to 203.6 million tons and 45.1 million tons, respectively. Also, copper production increased 2% to 1.7 million tons. However, nickel and manganese ores production slipped 7% and 3% year over year to 0.143 million tons and 8.3 million tons, respectively.

In fiscal 2014, BHP Billiton completed six major projects, with two of its other projects accomplishing their first production. The company's Caval Ridge coal mine, which was completed ahead of schedule and within budget, achieved its first production in June this year. Exiting fiscal 2014, BHP Billiton had eight low-risk, brownfield major projects under development, worth $14.1 billion.

Costs and Margins

Expenses, excluding finance costs, were $46.5 billion, down 7% year over year and representing 69.2% of total revenues. Net finance costs amounted to $1.2 billion, roughly flat year over year.

Underlying earnings before interest and tax (EBIT) was recorded at $22.9 billion, down 0.3% year over year.

Balance Sheet

Exiting fiscal 2014, BHP Billiton Limited had cash and cash equivalents of $8.8 billion versus $10.9 billion recorded at the end of first-half fiscal 2014. Interest-bearing liabilities were $30.3 million, down from $31.7 billion as of Dec 2013.

Cash Flow

BHP Billiton Limited generated net cash of $25.4 billion from its operating activities in fiscal 2014 as against $20.2 billion in fiscal 2013. Capital spent on purchases of property, plant and equipment dropped 28.1% year over year to $16 billion. Exploration expenditure amounted to $1 billion versus $1.4 billion in fiscal 2013.

In the reported period, BHP Billiton Limited paid dividends totaling $6.4 billion, compared with $6.2 billion in fiscal 2013. In addition, a final dividend payment of 62 cents per share was approved by the company's board of directors. Total dividend for fiscal 2014 presently stands at $1.21, increasing four cents from the prior annual rate.

Demerger: Concurrent with the earnings release, BHP Billiton Limited also communicated plans to trim down its asset portfolio by demerging its high-quality nickel, manganese, aluminium, coal and silver assets. The separation will create a new global metals and mining company.

BHP Billiton Limited's aluminium business includes Hillside, Bayside and Mozal smelters in South Africa, integrated bauxite mine and alumina refinery in Western Australia, and aluminium refinery and smelter in South America. The company's manganese assets are located in Australia and South America, while its nickel assets include Nickel West in Australia and Cerro Matoso in Colombia. Silver assets include Cannington (Australia), the world's largest silver producer.

The restructuring will enable BHP Billiton Limited to concentrate on its iron-ore, copper, coal, petroleum and potash businesses, which generate a major chunk of its profit. In fiscal 2014, the company sourced nearly 88% of its total revenue from these five businesses.

Over the last few years, BHP Billiton has been streamlining its businesses by hiving off non-profitable assets to improve productivity. Consequently, the company aims at achieving gains of approximately $3.5 billion by fiscal 2017 end.

Outlook: BHP Billiton expects the economy to continue reviving in the coming quarters, mainly in China. In fiscal 2015, the company estimates capital and exploration expenditure at roughly $14.8 billion. However, if the proposed demerger is implemented, the same may remain restricted to $14 billion.

With a market capitalization of $186.3 billion, BHP Billiton Limited currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Impala Platinum Holdings Ltd. ( IMPUY ), U.S. Silica Holdings, Inc. ( SLCA ) and Dominion Diamond Corporation ( DDC ). While Impala Platinum Holdings and U.S. Silica Holdings sport a Zacks Rank #1 (Strong Buy), Dominion Diamond Corp. holds a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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