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VALE (VALE) to Report Q3 Earnings: What's in the Cards?

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VALE (VALE) to Report Q3 Earnings: What's in the Cards?

Record iron-ore production and lower cash costs will likely drive VALE S.A (VALE) third-quarter results.

VALE S.A VALE is expected to report third-quarter 2018 results before the opening bell on Oct 25. The company is anticipated to witness year-over-year decline in its bottom-line in the to-be-reported quarter despite a rise in the top line, as per Zacks projections.


In second-quarter 2018, Vale delivered earnings per share of 40 cents, which soared 150% year over year. Total revenues increased 19% year over year to $8.6 billion in the last reported quarter. While earnings beat the Zacks Consensus Estimate, revenues missed the same.


Notably, the company surpassed the Zacks Consensus Estimate in the last four quarters, delivering an average surprise of 37.43%. Let’s see how things are shaping up prior to this announcement.


VALE S.A. Price and EPS Surprise



VALE S.A. Price and EPS Surprise

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

Factors to Consider

Vale crossed the threshold of production of 100 million tons (Mt) of iron ore fines in the third quarter. The company clocked record iron-ore production of 104.9 Mt, up 10% year over year. This was primarily driven by its S11D project, which also reached another quarterly production record of 16.1 Mt in the third quarter compared with 14.3 Mt in the previous quarter. The mine achieved a production rate of approximately 70% of its nominal capacity in the to-be-reported quarter. 


The company also reported a new sales record for iron ore and pellets of 98.2 Mt in the third quarter, up 9% from the prior-year levels. Further, premium products made up 79% of total sales in the third quarter compared with 77% in the second quarter. This reflects that Vale's superior product portfolio with high iron content continues to improve. The company also continues to benefit from high price premiums for its high grade iron ore fines. Steel-makers continue to look for higher iron ore grade and low alumina iron ore to increase productivity while lowering emissions. In this regard, Vale is well positioned as a major supplier of sinter fines combining high iron and low alumina.


These upbeat production numbers instills hope that the company will report improved top-line results in third-quarter 2018. Further, Vale’s cash cost is expected to be low due to the competitiveness of growing S11D volumes, seasonally lower costs and higher production.


The Zacks Consensus Estimate for total sales of $9.23 billion for the to-be-reported quarter indicates a year-over-year increase of 2%. The Zacks Consensus Estimate for Vale’s earnings for third-quarter 2018 has gone down 16% over the last 30 days and is pegged at 36 cents for the ongoing quarter. However, the earnings estimate reflects year-over-year decline of 10%.



Vale has outperformed the industry over the past year. Shares of the company have surged 57% while the industry grew 52%.


Earnings Whispers


Our proven model does not conclusively show that Vale is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:


Zacks ESP: Vale has an Earnings ESP of -8.33%. This is because the Zacks Consensus Estimate of 36 cents is pegged higher than the Most Accurate Estimate of 33 cents per share. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.


Zacks Rank: Vale has a Zacks Rank #2, which when combined with a -8.33% Earnings ESP makes surprise prediction inconclusive.


Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated) 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 you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:


CF Industries Holdings, Inc. CF has an Earnings ESP of +12.07% and a Zacks Rank #1.  You can see the complete list of today’s Zacks #1 Rank stocks here. The stock has gained 35% over the past year.


Arch Coal, Inc. ARCH has an Earnings ESP of +6.32% and a Zacks Rank #1. Its shares have gained 28% over the past year.


Allegheny Technologies Incorporated ATI has an Earnings ESP of +2.16% and a Zacks Rank #3.  Its shares have gained 12% in a year’s time.


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