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Vale Misses on Q4 Earnings; Beats on Rev

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Mining giant, Vale S.A. (VALE) reported weak financial results for fourth-quarter 2013. In the quarter, underlying earnings per ADR (American Depositary Receipt) came in at 62 cents (on a fully-diluted basis), up 72.2% year over year but down 12.7% sequentially. Earnings missed the Zacks Consensus Estimate of 64 cents per ADR by 3.1%.

Improvement in the company’s revenues and cost structure was responsible for the boost in year-over-year earnings.

For 2013, Vale reported earnings per ADR of $2.38, up 14.4% year over year and a cent higher than the Zacks Consensus Estimate of $2.37.

Revenues: Operating revenues rose 8.5% year over year and 5.4% sequentially to $13.6 billion. Revenues were higher than the Zacks Consensus Estimate of $12.6 billion. The year-over-year increase in revenues was attributable to higher production volumes and prices, mainly of iron ore and pellets sales.

Of Vale’s total revenue, sales of ferrous minerals accounted for 74.8%; coal sales 2.5%; base metals sales 13.9%; fertilizer nutrients sales 4.3%; logistics services sales 2.5%; and the remaining 2.0% came from the sale of miscellaneous sources.

On a geographic basis, 15.2% of revenues were generated from South America, 57.8% from Asia, 4.5% from North America, 17.9% from Europe, 3.4% from the Middle East and 1.2% from Rest of the World.

For 2013, the company generated operating revenues of $49.0 billion, up marginally from $48.8 billion recorded in 2012. Revenues also missed the Zacks Consensus Estimate of $47.3 billion, comprehensively.

Production Status: In the fourth quarter of 2013, Vale experienced record production volumes of copper, coal, nickel and gold. Gold production soared to 88,000 ounces, increasing 86.2% year over year. Coal production was 2.3 million tons, increasing 15.7% year over year, a new all-time high. While the production of iron ore, pellets, phosphate rock, gold, silver, coal, nickel and copper improved; potash, ferroalloys and manganese ore experienced a year-over-year decline.

Expenses: In the fourth quarter, cost of goods sold totaled $7.0 billion, roughly flat year over year. Selling, general and administrative expenditures were $362.0 million, while research and development expenses were $276.0 million; declining 37.3% and 40.0% year over year, respectively. Vale’s efforts to divest unproductive projects by reducing its geographical presence led to this decline.

Balance Sheet/Cash Flow: Exiting the fourth quarter of 2013, Vale’s cash and cash equivalents were recorded at $5.3 billion versus $7.1 billion in the previous quarter. Long-term liabilities came in at $50.1 billion, up from $43.7 billion in the preceding quarter.

In the reported quarter, net cash generated from operating activities was $1.7 billion compared with $3.2 billion in the year-ago quarter, while capital spending came in at $3.8 billion versus $4.8 billion in the fourth quarter of 2012.

Outlook: In the coming quarters, management expects to increase production volumes with enhanced mining operations in Carajas. Also, Vale’s cost-saving strategies are expected to succeed, which in turn will increase the company’s earnings. 

Other Stocks to Consider

Vale currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks worth considering in the industry include AK Steel Holding Corporation (AKS), Olympic Steel Inc. (ZEUS) and United States Steel Corp. (X). All these sport a Zacks Rank #2 (Buy).

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