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Vale Tops Q2 Earnings, Lags Rev

Mining giant, Vale S.A. (VALE) recently released the financial results for second-quarter 2013. Underlying earnings per ADR declined 20.3% year over year but improved 6.4% sequentially and came in at 64 cents (on a fully-diluted basis) in the quarter.

Results beat the Zacks Consensus Estimate of 49 cents per ADR by 30.6%. Improvement in the company’s cost structure and margins boosted earnings.

Revenues: Operating revenues dropped 11.4% year over year but were roughly in line sequentially at $11.3 billion. It also lagged the Zacks Consensus Estimate of $12.3 billion. The year-over-year decrease in revenues was the result of lower production volumes, mainly iron ore. However, the commodity prices declined sequentially.

Of Vale’s total revenue, sales of ferrous minerals accounted for 69.0%; coal sales 2.3%; base metals sales 15.1%; fertilizer nutrients sales 7.1%; logistics services sales 3.8%; and the remaining 2.7% came from the sale of miscellaneous sources.

Geographically, 22.1% of revenues were generated from South America, 50.1% from Asia, 5.3% from North America, 17.8% from Europe, 3.3% from the Middle East and 1.4% from Rest of the World.

Production Status: In the second quarter of 2013, Vale experienced a record copper production of 91,300 metric tons. Also, nickel production reached its peak after the second quarter of 2008 and came in at 65,000 metric tons. Gold production reached a high of 63,000 ounces, increasing by 9.0% year over year. Coal increased 35.6% sequentially to 2.4 metric tons. While the production of iron ore, pellets, manganese, gold, coal, nickel and copper increased, potash and phosphate rock experienced a sequential decline.

Expenses: In the second quarter, cost of goods sold totaled $6.2 billion, down 4.6% year over year. Selling, General and Administrative (SG&A) and Research and Development (R&D) expenses were $324.0 million and $158.0 million, declining 47.3% and 56.0% year-over-year, respectively. This decline resulted from Vale’s initiatives to mitigate its geographical presence with fewer projects with the divestiture of unproductive ones and reduction of discretionary expenses.

Balance Sheet/Cash Flow: Exiting the second quarter of 2013, Vale’s cash and cash equivalents were recorded at $5.9 billion versus $6.0 billion in the previous quarter. Long-term liabilities decreased to $43.7 billion compared with $44.2 billion in the previous quarter.

Net cash generated from operating activities was $4.9 billion versus $4.3 billion in the year-ago quarter while capital spending came in at $3.4 billion versus $3.2 billion in the first quarter of 2012.

Guidance: In the coming quarters, management expects to increase the production volumes of coal and iron ore, with the mining in Carborough Downs and Carajas. Also, Vale’s cost-saving strategies are expected to pay off, which in turn will increase the company’s earnings.

Other Stocks to Consider

Cliffs Natural Resources Inc. (CLF) announced second-quarter 2013 operating earnings of $1.13 per share, 85.3% above the Zacks Consensus Estimate of 61 cents.

AK Steel Holding Corporation (AKS) announced second-quarter 2013 operating loss of 15 cents, narrower than the Zacks Consensus Estimate of a loss of 35 cents.

Vale currently carries a Zacks Rank #3 (Hold). Another stock, Alderon Iron Ore Corp. (AXX), carrying a Zacks Rank #2 (Buy), can also be considered by investors.

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