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VALE (VALE) to Report Q4 Earnings: What's in the Offing?

Zacks Equity Research

VALE S.A VALE is scheduled to report fourth-quarter 2018 results on Mar 27, after the closing bell.

In the last reported quarter, Vale delivered earnings per share of 40 cents, which remained flat year over year. Total revenues increased 5% year over year to $9.5 billion in the last reported quarter. The company beat the Zacks Consensus Estimate on both counts.
 
Vale’s earnings performance has been encouraging, with the company beating estimates in the trailing four quarters, recording average positive surprise of 39.65%. 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 achieved record iron ore production and sales in the third quarter of 2018. Iron-ore production totaled 104.9Mt in the quarter, 8.1 Mt higher than the prior-year quarter. Iron ore and pellets sales totaled 98.2 Mt in the third quarter, 9% higher year over year. Pellets volumes reached a record high of 14.3 Mt in the third quarter, supported by the company’s decision to restart the three idle pellet plants. This is likely to continue in the fourth quarter as well. Vale continues to benefit from record high price premiums for its high grade iron ore fines as high grade ore accounted for 79% of its third-quarter iron ore production compared with 68% in 2017.

The company anticipates meeting full-year iron-ore production guidance of around 390 Mt for 2018. Iron ore shipment volume is expected to increase in the fourth quarter, primarily driven by higher production and rising demand from emerging market economies. The company will be able to achieve this as volumes continue to improve at its S11D mine. Further, the mine has contributed to the increase in the share of premium products on total sales (a record 79% in the third-quarter 2018), which will help the company increase its price realization even further. Higher price realization would contribute to higher iron ore revenues in the to-be-reported quarter.

Vale has been steadily lowering debt and closed the third quarter of 2018 with net debt of $10.7 billion — the lowest level since third-quarter 2009. The company is close to its target of net debt of $10 billion. Further, the company announced a share-buyback program of $1 billion in July 2018, to be executed within the period of one year. It has already executed around 49% of the repurchase program in the third quarter, purchasing 36.8 million shares at an average price of $13.27 as of Sep 30, 2018. Lower interest expense owing to debt repayment and share repurchases will be accretive to earnings in the fourth quarter of 2018. Further, Vale’s cash cost is anticipated to be low on account of the competitiveness of growing S11D volumes, seasonally lower costs and higher production.

The Zacks Consensus Estimate for total sales of $10.7 billion for the to-be-reported quarter indicates year-over-year increase of 16%. The Zacks Consensus Estimate for Vale’s earnings for fourth-quarter 2018 is currently pegged at 62 cents. The earnings estimate reflects year-over-year improvement of 72%.
 
Price Performance
 

 

Vale has performed on par with the industry over the past year, gaining 1%.
 
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 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate stand at 62 cents. . You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Zacks Rank: Although Vale’s Zacks Rank #2 increases the predictive power of ESP, its 0.00% ESP makes surprise prediction difficult. .
 
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 you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:
 
Lithium Americas Corp. LAC has an Earnings ESP of +28.57% and a Zacks Rank #2.   You can see the complete list of today’s Zacks #1 Rank stocks here.

Shaw Communications Inc. SJR has an Earnings ESP of +1.10% and a Zacks Rank #2.
 
Valmont Industries, Inc. VMI has an Earnings ESP of +14.93% and a Zacks Rank #3.
 
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Shaw Communications Inc. (SJR) : Free Stock Analysis Report
 
VALE S.A. (VALE) : Free Stock Analysis Report
 
Valmont Industries, Inc. (VMI) : Free Stock Analysis Report
 
Lithium Americas Corp. (LAC) : Free Stock Analysis Report
 
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