Dismal 4Q for Vale - Analyst Blog

Mining giant, Vale S.A. ( VALE ) recently released its financial results for the fourth quarter and full-year 2012. Underlying earnings per ADR declined 57.8% year over year and 83.0% sequentially to 38 cents per share (on a fully diluted basis) in the quarter.

Results also failed to meet the Zacks Consensus Estimate of 50 cents per ADR. Weak global economy as well as low prices for most of its products severely impacted revenue.

For 2012, Vale reported earnings per ADR of $2.20, declining almost 50.3% compared with the year-ago earnings of $4.43. However, earnings beat the Zacks Consensus Estimate of $2.07 per ADR.

Revenue : Operating revenue plunged 18.7% year over year to $12.0 billion. However, it increased by 9.5% sequentially and also beat the Zacks Revenue Estimate of $11.4 billion by 5.1%. The year-over-year decrease in revenue was a result of lower prices for its products other than gold. However, the prices were slightly better sequentially. Also, an increase in volume of production, especially iron ore, helped the sequential increase.

Of the total revenue, sales of ferrous minerals accounted for 70.2%; coal sales 1.7%; base metals sales 15.1%; fertilizer nutrients sales 7.7%; logistics services sales 3.2%; and the remaining 2.1% came from sales of miscellaneous sources.

Geographically, 18.3% of revenue was generated from South America, 56.8% from Asia, 4.6% from North America, 16.3% from Europe, 2.8% from the Middle East and 1.2% from Rest of the World.

Revenue dropped 23.1% year over year in 2012 to $46.5 billion, resulting from a decline in the prices of metals and minerals across the year. However, revenues slightly beat the Zacks Consensus Estimate of $45.0 billion.

Margins : In the fourth quarter, cost of goods sold totaled $6.5 billion, increasing 720 basis points year over year, due to an increase in the freight costs. SG&A and R&D expenses were $577.0 million and $460.0 million declining 30.2% and 13.0% year over year, respectively. This resulted from Vale's initiatives to curb costs.

Lower prices of the products pulled down the adjusted operating income by 51.2% year over year to $2.9 billion in the quarter.

Balance Sheet/Cash Flow : Exiting the fourth quarter of 2012, Vale's cash and cash equivalents were recorded at $5.8 billion versus $8.0 billion in the previous quarter. Long-term debt increased to $43.0 billion compared with $42.4 billion in the previous quarter.

Net cash generated from operating activities was $3.4 billion versus $7.5 billion in the year-ago quarter while capital spending came in at $4.8 billion versus $6.1 billion in the fourth quarter of 2011.

Outlook : In the coming quarters, management expects its cost saving strategies to pay-off, which in turn will increase the earnings of the company.

The stock currently bears a Zacks Rank #3 (Hold). Other stocks in the minerals industry worth a look are Kumba Iron Ore Ltd. ( KIROY ); holding a Zacks Rank #1 (Strong Buy), and Commercial Metals Company ( CMC ) and Gibraltar Industries Inc. ( ROCK ) both of which hold a Zacks Rank #2 (Buy).

COMMERCIAL METL (CMC): Free Stock Analysis Report


GIBRALTAR INDUS (ROCK): Free Stock Analysis Report

VALE SA (VALE): Free Stock Analysis Report

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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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