Mining giant Vale S.A. (VALE) declared weak financial results for fourth-quarter 2014, on Feb 26, 2015. The company reported adjusted loss per ADR (American Depositary Receipt) of 5 cents per share compared with the year-ago adjusted earnings of 62 cents per share. The bottom line also missed the Zacks Consensus Estimated of 17 cents per share.
For full-year 2014, the company’s earnings came in at 86 cents per share, down 63.9% from the year-ago tally of $2.38.
Weak fourth-quarter earnings were primarily the result of poor revenues, caused by declining market prices for the company’s major products.
Revenues
Gross operating revenues declined 30.5% year over year and 0.2% sequentially to $9.2 billion. The top line marginally lagged the Zacks Consensus Estimate of $9.3 billion. Of the total gross revenue, sales of ferrous minerals accounted for 67.3%; coal 2.2%; base metals 21.1%; fertilizer nutrients 6.6%; and the remaining 2.8% came from miscellaneous sources.
Geographically, 19.2% of revenues were generated from South America, 52% from Asia, 7% from North America, 16.9% from Europe, 3.1% from the Middle East and 1.9% from Rest of the World.
The company’s gross operating revenue for 2014 came in at $38.2 billion versus $47.5 billion reported at the end of 2013.
Expenses
In the fourth quarter, cost of goods sold totaled $6.9 billion, up 3.5% year over year. Selling, general and administrative expenditure stood at $306.0 million, while research and development expenses were $235.0 million; declining 9.7% and 13.6% year over year, respectively.
Balance Sheet/Cash Flow
Exiting the fourth quarter of 2014, Vale had cash and cash equivalents of $4.0 billion versus $7.9 billion in the previous quarter. Long-term liabilities came in at $49.4 billion, up marginally from $49.1 billion in the preceding quarter. Net cash generated from operating activities amounted to $1.2 billion, compared with $1.7 billion in the year-ago quarter; while capital spending was $3.4 billion versus $3.0 billion in the fourth quarter of 2013.
Outlook
Vale expects depressed global oil prices and depreciating currencies of few countries to support the production growth of its coal, going forward. However, market price for the same would remain low due to weak consumption demand from major countries such as China.
The company also hopes to expand its iron ore yields in fiscal 2015, considering that it would soon receive its N4WS mine operating license. However, Vale has revised and optimized its capex plan for 2015. Although the company aims to augment its free cash flow through new disinvestment plans, cost-cutting initiatives and strategic partnerships, these are not expected to bear fruit before 2017.
Stocks to Consider
With a market capitalization of $37.83 billion, Vale currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the industry include Cliffs Natural Resources Inc. (CLF), Asanko Gold Inc. (AKG) and Air Products & Chemicals Inc. (APD). All the three stocks hold a Zacks Rank #2 (Buy).
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