Rio Tinto plc (RIO) reported mixed financial results for the first half of 2014 (ended Jun 30, 2014). The company generated underlying earnings of $5.1 billion, up 21% year over year from $4.2 billion.
The increase in earnings was primarily attributable to cost-reduction initiatives undertaken by the company. Underlying earnings per ADR came in at $2.77 against $2.29 reported in the year-ago comparable period.
Sales
Consolidated sales declined marginally to $24.3 billion from $24.5 billion recorded in the six months ended Jun 30, 2013. The top-line fall can be attributed to adverse price movements for most of its commodities, partially offset by increase in volumes.
The company recorded strong production volumes for most of its commodities in the first half of 2014. While the production of mined copper, hard coking coal, semi-soft and thermal coal and iron ore, along with iron ore shipments increased, bauxite and titanium dioxide feedstock declined.
Costs/Margins
In the reported half year, Rio Tinto’s exploration and evaluation costs declined 35.5% year over year to $340 million. Operating profit was $5.6 billion, which compared unfavorably with $5.8 billion a year ago.
Balance Sheet/Cash Flow
Exiting the first half year of 2014, cash and cash equivalents came in at $9.6 billion, down from $10.2 billion at the end of 2013. Long-term borrowings and other financial liabilities were $23.6 billion, compared with $24.6 billion at 2013-end.
Net cash flow from operating activities was relatively flat year over year at $5.5 billion. The company’s capital expenditure decreased to $3.8 billion from $7.0 billion in the comparable last-year period.
Rio Tinto paid dividend of 96 cents per share in the first six months of 2014, a 15% increase from 83.5 cents paid in the prior-year comparable period.
Outlook
The company expects global GDP growth rate in 2014 to climb 3%, boosting the consumer demand. Rio Tinto expects demand to grow in China due the government’s initiatives toward infrastructure investment. Capital expenditure in 2014 is expected to be around $9 billion, while for 2015 it is estimated at approximately $8 billion.
Other Stocks to Consider
With a market capitalization of $105.7 billion, Rio Tinto holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include U.S. Silica Holdings, Inc. (SLCA), Dominion Diamond Corp. (DDC) and Hi-Crush Partners LP (HCLP). While U.S. Silica Holdings sports a Zacks Rank #1 (Strong Buy), Dominion Diamond and Hi-Crush Partners hold a Zacks Rank #2 (Buy).
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