Vale S.A. (VALE) Q1 Earnings Miss Estimates, Shares Dip

Mining giant, Vale S.A.’s VALE first-quarter 2017 adjusted earnings of 41 cents per share missed the Zacks Consensus Estimate of 48 cents. Share price of the stock dipped nearly 3.6% on Apr 27, reflecting investors’ disappointment toward the weaker-than-expected quarterly earnings.

Over the last one month, shares of this Zacks Rank #3 (Hold) stock recorded a loss of 12.37%, wider than the loss of 9.51% incurred by the Zacks categorized Mining - Iron industry.

Remarkable slump in iron-ore price since the beginning of this year has been hurting the mining industry. Prices of this major steel-making component has been sliding down due to a supply glut in the market, anticipation of poor Chinese steel demand, as well as concerns relating to Donald Trump’s overnight announcement to examine foreign steel imports in the U.S.

Earnings

Quarterly adjusted earnings came in at 41 cents per share, missing the Zacks Consensus Estimate of 48 cents. However, the bottom line surpassed the year-ago tally of 10 cents per share.

Revenues

Net operating revenue surged 59.6% year over year to $8.5 billion. However, quarterly revenues dipped 8.1% on a sequential basis, due to reduced sales volumes of ferrous minerals, operational disturbances and deliberate maintenance shutdown in base metals.

Of the total net operating revenue, sales of ferrous minerals accounted for 76.3%, coal contributed 3.8%, base metals comprised 18.8% and the remaining 1.1% was sourced miscellaneously.

Geographically, 11.1% of revenues were generated from South America, 58.7% from Asia, 7% from North America, 17.6% from Europe, 3.4% from the Middle East and 2.2% from Rest of the World.

Expenses

In the first quarter, cost of goods sold totaled $4.7 billion, up 21.7% year over year. The upside was stemmed by price-related expenses incurred due to leasing of royalties, pellet plants, exchange rate translation impact and increased bunker oil prices.

Selling, general and administrative expenditure increased 15.9% to $124 million, while research and development expenses grew 18.2% to $65 million, both on a year-over-year basis.

Balance Sheet/Cash Flow

Vale exited the first quarter with cash and cash equivalents of $6.7 billion compared with $3.8 billion in the prior-year period. Non-current liabilities came in at $1 billion, up from $94 million recorded in the prior year.

In the reported quarter, net cash provided from operating activities came in at $2.9 billion, as against $515 million cash used in the year-ago quarter. Capital spending summed $1.1 billion as against $1.3 billion in first-quarter 2016.

Outlook

Vale anticipates to improve its financial fundamentals on the back of specialized cost-saving plans, productivity enhancement schemes, growth projects and superior mining yield. Moreover, the company is aimed at stabilizing its absolute debt level in the coming quarters through efficient disinvestment programs and suitable capital-deployment strategies. However, on the other hand, we believe that a further decline in iron-ore prices might hurt the company’s bottom-line performance in the quarters ahead.

Stocks to Consider

Some better-ranked stocks in the industry are listed below:

BASF SE BASFY has a positive average earnings surprise of 3.55% for the trailing four quarters and carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Air Products and Chemicals, Inc. APD, which holds a Zacks Rank #2, generated an average earnings surprise of 0.49% in the last four quarters.

Arconic Inc. ARNC also carries a Zacks Rank #2 and has an average earnings surprise of 24.47% for the past quarters.

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