On October 26, Vale S.A (VALE”>VALE) released its financial results for the third quarter of 2011. The company’s net earnings in the quarter were 94 cents per ADR, on a fully diluted basis, down 16.8% compared with $1.13 per ADR in the year-ago quarter, missing the Zacks Consensus Estimate of $1.31 per ADR. The earnings suffered a non-cash impact of US$2.9 billion due to the depreciation of the Brazilian real, against the US dollar.
Revenue
Gross Operating revenue jumped 15.5% year over year to $16,741 million and registered a sequential growth of 9.1%. Production of iron ore, pellets, copper and thermal coal reached all-time highs as well as sales volume growth of bulk material, fueled the rise in operating revenue for the company. The recorded revenue however missed the Zacks Revenue Estimate of $17,631 million.
Of the total revenue, sales of ferrous minerals accounted for 74.5%; coal sales 1.7%; base metals 13.7%; fertilizer nutrients 6.2%; logistics services 3.0%; and the rest 0.9% came from miscellaneous sources.
Sales volume of iron ore shipments, responsible for 60.5% of total revenue in the quarter, amounted to 97.6 million metric tons, down 1.5% year over year and up 7.0% sequentially. Geographically, 19.7% of revenue was generated from South America, 53.7% from Asia, 4.7% from North America, 18.9% from Europe, 1.7% from Middle East and 1.2% from the Rest of the World.
Margins
In the third quarter, cost of goods sold totaled $6,252 million, up from $5,113 million in the year-ago quarter. SG&A and R&D expenses were $654 million and $440 million, up from $418 million and $216 million in the year-ago quarter.
Operating income measured by adjusted EBIT was recorded at $8,373 million, compared with $7,836 million in the prior year comparable quarter. Operating margin, as measured by adjusted EBIT margin, was 51.2% in 3Q11, down compared with 55.6% in the previous year quarter. Adjusted EBITDA was $9,631 million in the quarter compared with $8,815 million in the previous year quarter.
Balance Sheet/Cash Flow
Exiting the third quarter of 2011, Vale’s cash and cash equivalents were down 22.2% year over year and 42.8% sequentially to $7,565 million. Long-term debt increased sequentially to $479 million from $268 million in the previous quarter.
Net cash provided by operating activities was $4,211 million, down from $6,879 million and $7,065 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 rivals Rio Tinto Plc (RIO”>RIO) and BHP Billiton Ltd (BHP”>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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