Mining giant, Vale S.A. (VALE) recently released its financial results for the first quarter 2013. Underlying earnings per ADR declined 10.1% year over year and improved 63.2% sequentially to 62 cents (on a fully diluted basis) in the quarter.
Results beat the Zacks Consensus Estimate of 40 cents per ADR by 55.0%. Improvements in the company’s cost structure and margins helped boost the earnings which were offset by the lower volumes of production.
Revenue: Operating revenue dropped 5.4% year over year and 10.7% sequentially to $11.2 billion. It also lagged the Zacks Revenue Estimate of $11.4 billion by 2.0%. The year-over-year decrease in revenue was a result of lower volumes of production of its products, mainly iron ore. However, the commodity prices were slightly better sequentially.
Of Vale’s total revenue, sales of ferrous minerals accounted for 69.7%; coal sales 1.9%; base metals sales 16.4%; fertilizer nutrients sales 6.9%; logistics services sales 3.2%; and the remaining 1.9% came from the sale of miscellaneous sources.
Geographically, 20.4% of revenue was generated from South America, 51.3% from Asia, 5.6% from North America, 18.5% from Europe, 3.1% from the Middle East and 1.1% from Rest of the World.
Costs/Margins: In the first quarter, cost of goods sold totaled $5.7 billion, down 6.9% year over year. SG&A and R&D expenses were $374.0 million and $176.0 million, declining 29.3% and 41.1% year-over-year, respectively. This was a consequence of Vale’s initiatives to mitigate its presence geographically with fewer projects and reduction of discretionary expenses.
These cost control efforts by Vale increased the adjusted operating income by 6.8% year over year to $4.2 billion in the quarter.
Balance Sheet/Cash Flow: Exiting the first quarter of 2013, Vale’s cash and cash equivalents were recorded at $6.0 billion versus $5.8 billion in the previous quarter. Long-term debt increased to $44.2 billion compared with $43.1 billion in the previous quarter.
Net cash generated from operating activities was $3.9 billion versus $3.2 billion in the year-ago quarter while capital spending came in at $3.5 billion versus $3.0 billion in the first quarter of 2012.
Outlook: In the coming quarters, management expects that both supply and demand will play their role and maintain an average price for iron ore. Also, Vale’s cost saving strategies are expected to pay-off, which in turn will increase the earnings of the company. Vale also reaffirmed its expenses for project and exploration studies at about $1.1 billion for 2013.
The stock currently bears a Zacks Rank #3 (Hold). Other stocks in the metals and minerals industry worth a look are Gibraltar Industries Inc. (ROCK) and Cameco Corporation (CCJ); both holding a Zacks Rank #1 (Strong Buy), while Atlatsa Resources Corporation (ATL) holds a Zacks Rank #2 (buy).
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