On July 28, Vale S.A (VALE) released its financial results for the second quarter of 2011. The company’s net earnings in the quarter were $1.22 per ADR, up 74.3% compared with 70 cents per ADR in the year-ago quarter, missing the Zacks Consensus Estimate of $1.40 per ADR.
Strong worldwide demand and high prices of minerals and metals along with appreciation of Brazilian real, against the US impacted the net earnings positively.
Revenue
Gross Operating revenue jumped 54.5% year over year to $15,345 million and registered a sequential growth of 13.4%. The operating revenue set record for the highest quarterly result in Vale’s history. Rise in sales prices and volume growth of bulk material due to larger shipments has boosted such revenue rise. The recorded revenue however missed the Zacks Revenue Estimate of $17,688 million.
Of the total revenue, sales of ferrous minerals accounted for 74.5%; coal sales 1.7%; base metals 14.5%; fertilizer nutrients 5.7%; logistics services 3.1%; and the rest 0.6% came from miscellaneous sources.
Sales volume of iron ore shipments, responsible for 59.3% of total revenue in the quarter, amounted to 62.6 million metric tons, up 6% year over year and 8.5% sequentially. Geographically, 20.8% of revenue was generated from South America, 52.1% from Asia, 4.4% from North America, 20.0% from Europe, and 2.7% from the Rest of the World.
Margins
In the second quarter, cost of goods sold totaled $5,721 million, up 2.6% sequentially. SG&A and R&D expenses were $434 million and $363 million, up from $343 million and $189 million in the year-ago quarter.
Adjusted EBIT of $7,747 million in the quarter was above $4,630 million in the year-ago quarter with operating margin was 51.7% compared with 47.9% a year ago. Adjusted EBITDA was $9,069 million in the quarter, up 62.6% in the previous year quarter.
Balance Sheet/Cash Flow
Exiting the second quarter of 2011, Vale’s cash and cash equivalents inched up 112.1% year over year and 17.4% sequentially to $13,227 million. Long-term debt decreased sequentially to $268 million from $603 million in the previous quarter.
Net cash provided by operating activities was $7,065 million, up from $3,676 million and $6,008 million respectively, in the year-ago and previous sequential quarter.
Brazil-based Vale S.A. is one of the world’s largest producers and exporters of iron ore and pellets. The company keeps improvising its competitiveness against rival companies like Rio Tinto Plc (RIO) and BHP Billiton Ltd (BHP).
We currently maintain a long-term Neutral recommendation on the stock. Vale has a Zacks #3 Rank, which translates into a short-term Hold rating (1-3 months).
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