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Vale's (VALE) Shares Gain as Q3 Earnings Beat Estimates

Zacks Equity Research
·5 min read

Vale S.A. VALE shares have gained 2.3% since it reported third-quarter 2020 adjusted earnings per share of 84 cents that improved 133% from the prior-year quarter. The bottom line figure also beat the Zacks Consensus Estimate of 72 cents. The better-than-expected performance was primarily driven by a 26% increase in iron ore prices and 20% higher sales volumes in the quarter under review.

Including one-time items, Vale reported earnings per share of 57 cents in the quarter compared with 32 cents in the prior-year quarter.

Revenues

Net operating revenues increased 5% year over year to around $10.76 billion. The top line lagged the Zacks Consensus Estimate of $10.82 billion.

Of the total net operating revenues, sales of ferrous minerals accounted for 80.7%, base metals comprised 17.7%, coal contributed 1%, and the remaining 0.7% was sourced miscellaneously.

Geographically, 72.5% of revenues were generated from Asia, 13.0% from Europe, 8.0% from South America, 2.6% from North America, 2.3% from the Middle East, and 1.6% from Rest of the World.
 

VALE S.A. Price, Consensus and EPS Surprise

VALE S.A. Price, Consensus and EPS Surprise
VALE S.A. Price, Consensus and EPS Surprise

VALE S.A. price-consensus-eps-surprise-chart | VALE S.A. Quot

Operating Performance

In third-quarter 2020, cost of goods sold totaled $4,816 million, down 15% year over year. Gross profit increased 31% year over year to $5,946 billion. Gross margin was 55.2%, up from 44.4% in the prior year quarter.

Selling, general and administrative expenditure dipped 1% year over year to $127 million. Research and development expenses declined 15% to $105 million compared with year-ago quarter.

Adjusted operating income was $5,321 million in the reported quarter compared with $3,676 million in the prior-year quarter. Adjusted EBITDA was $6,095 million in the reported quarter compared with $4,603 million in the prior-year quarter. Pro-forma adjusted EBITDA(excluding expenses related to Brumadinho and COVID-19) surged 30% year over year to $6,224 billion — the highest since fourth-quarter 2013. This was primarily driven by the 26% increase of iron ore realized prices and 20% higher iron ore sales volumes in the reported quarter. Notably, EBITDA improved across all businesses.

Balance Sheet & Cash Flow

Vale exited third-quarter 2020 with cash and cash equivalents of $8.8 billion compared with $12.1 billion at the end of second-quarter 2020. Net debt at the quarter end stood at $4.5 billion — lowest level since fourth-quarter 2008 — down from $4.7 billion at the end of second-quarter 2020. In third-quarter 2020, net cash generated from operating activities totaled $4.8 billion compared with $4.1 billion in the prior-year quarter. Capital spending amounted to $895 million during the quarter compared with $891 million in the year-ago quarter.

Other Updates

In August, Vale approved the Serra Sul 120 Project, which calls for a multi-year investment of $1.5 billion. The project, with an expected start-up for 2024, will provide flexibility to Vale’s operations in the Northern System and aggregates important elements to reduce operational risk and add reliability to the Northern System.

Steel demand is expected to pick up. In China, investments in new infrastructure projects will lead to demand growth for steel, which in turn will drive demand for iron ore. Regions excluding China are expected to partially recover and steel demand is expected to go up 9.4% in 2021 led by recovery in India, ASEAN (Association of Southeast Asian Nations), Turkey and Europe. However, the resurgence of COVID-19 cases in Europe creates an uncertainty.

Seaborne coking coal market is expected to strengthen in the fourth quarter driven by the ongoing recovery in global industrial and construction activities. Continued strength in Chinese demand and supply issues will aid copper prices this year.

Price Performance

Year to date, shares of Vale have fallen 18.4%, in line with the industry.

Zacks Rank & Other Stocks to Consider

Vale currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Some other top-ranked stocks in the basic materials space are Agnico Eagle Mines Limited AEM, Barrick Gold Corporation GOLD and Newmont Corporation NEM. While Agnico Eagle Mines and Barrick Gold sport a Zacks Rank #1, Newmont carries a Zacks Rank #2 (Buy).

Agnico Eagle Mines has an expected earnings growth rate of 86% for the current year. The company’s shares have surged 31% year to date.

Barrick Gold has a projected earnings growth rate of 99% for the current year. The company’s shares have gained 46% year to date.

Newmont has an estimated earnings growth rate of 91% for the ongoing year. Its shares have appreciated 42% so far this year.

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VALE S.A. (VALE) : Free Stock Analysis Report
 
Newmont Corporation (NEM) : Free Stock Analysis Report
 
Barrick Gold Corporation (GOLD) : Free Stock Analysis Report
 
Agnico Eagle Mines Limited (AEM) : Free Stock Analysis Report
 
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Zacks Investment Research