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Vale (VALE) To Report Q2 Earnings: What's in the Offing?

Zacks Equity Research

Vale S.A VALE is scheduled to report second-quarter 2019 results on Jul 31, after the closing bell.

Which Way Are Estimates Treading?

The Zacks Consensus Estimate for second-quarter revenues is pegged at $10.49 billion, indicating an improvement of 21.77% from the year-ago quarter. The same for earnings stands at 60 cents, suggesting growth of 50% from the prior-year reported figure.

VALE S.A. Price and EPS Surprise

 

VALE S.A. Price and EPS Surprise

VALE S.A. price-eps-surprise | VALE S.A. Quote

The company has been witnessing upward revisions of late. The Zacks Consensus Estimate for the company’s second-quarter 2019 earnings has moved up 7% to 60 cents per share in the past 30 days.

Vale’s shares have dropped 6% in the past year, in-line with the industry. Will the upcoming earnings release provide a boost to Vale’s stock? Let’s take a look.

Factors to Influence Q2 Results

Vale recently reported second quarter-2019 production update, which provides a sneak preview into quarterly results. Iron ore production declined 33.8% on a year-over-year basis to 64.1 Mt while quarterly sales dropped 15.5% to 61.9 Mt. This can primarily be attributed to suspension of operations in the aftermath of the Brumadinho dam rupture and unusual weather-related conditions in the Northern System in April and early May.

Iron ore and pellets sales amounted to 70.8 Mt in the reported quarter, down 18.2% on a year-over-year basis. The share of premium products on total sales was 86% in the second quarter. Despite the lower production levels, the company is likely to benefit from the higher iron ore prices triggered by fears of supply crunch owing to the Brumadinho dam breach and the Cyclone Veronica in Australia.

During second-quarter 2019, Vale’s pellet production totaled 9.1 Mt, which came in 29.3% lower than last year owing to the full stoppage of the Southern System pellet plants during the second quarter of 2019, abnormal rain in the Northern and Southeastern Systems, and maintenance carried out at the Tubarao plants.

Nickel sales volumes were down 6.7% to 57,500 tons in the to-be-reported quarter, while sales volumes of copper totaled 95,000 tons in the second quarter, 0.4% higher year over year. Manganese ore sales volumes were 92,000 tons, 61.5% lower year over year, primarily owing to lower production and abnormal rains at the Ponta da Madeira port that in turn affected shipments. Coal sales came in at 2.1 Mt, down 16.6% from the year-ago quarter.

Vale is also focusing on maintaining its ‘”value over volume” approach for the iron ore business. Despite the production constraints, Vale remains committed to delivering the highest possible margins by managing extensive supply chain and flexible product portfolio. The company is focused on better price realization, based on adjustments to product portfolio according to market demand and supply chain optimization.

Earnings Whispers

Our proven model shows that Vale is likely to beat estimates in the second quarter. This is because a stock needs to have a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is the case here as you will see below:

Earnings ESP: Earnings ESP for Vale is +4.56%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Vale currently carries a Zacks Rank of 2, which when combined with a positive ESP, makes us reasonably confident of an earnings beat.

It should be noted that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some companies in the Basic Materials space, which you may want to consider as our model shows that these have the right combination of elements to post earnings beat this quarter:

New Gold Inc. NGD has an Earnings ESP of +6.67% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here

Barrick Gold Corporation GOLD has an Earnings ESP of +1.56% and a Zacks Rank #2.

Carpenter Technology Corporation CRS has an Earnings ESP of +0.27% and a Zacks Rank #3.

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