Mining giant Vale S.A. VALE first-quarter 2015 loss of 13 cents per share on a fully diluted basis were narrower than the Zacks Consensus Estimate of a loss of 22 cents per share. However, results compared unfavorably with the year-ago adjusted earnings of 40 cents. Despite the weak results reported on Apr 30, 2015, shares gained 4.6% to close at $8.03 on May 4. We believe narrower than expected loss and optimistic business outlook managed to retain investors’ confidence in the stock.
Depreciation of Brazilian currency with respect to the U.S. dollar and declining product prices were primarily responsible for Vale’s poor revenue picture in first-quarter 2015 that ultimately affected its earnings.
Revenues
Gross operating revenue dropped 34.3% year over year and 31.1% sequentially to $6.4 billion. The top line also lagged the Zacks Consensus Estimate of $7.4 billion. Of the total gross revenue, sales of ferrous minerals accounted for 62.1%; coal 2.3%; base metals 26.9%; fertilizer nutrients 8.1%; and the remaining 0.6% came from miscellaneous sources.
Geographically, 20.1% of revenues were generated from South America, 47.4% from Asia, 8.9% from North America, 17.7% from Europe, 4.5% from the Middle East and 1.4% from Rest of the World.
Expenses
In the first quarter, cost of goods sold totaled $5.2 billion, down 7.5% year over year. Selling, general and administrative expenditure stood at $195.0 million, while research and development expenses were $119.0 million; declining 30.9% and 17.9% year over year, respectively.
Balance Sheet/Cash Flow
Exiting the first quarter of 2015, Vale had cash and cash equivalents of $3.7 billion versus $4.0 billion recorded on Dec 31, 2014. Long-term liabilities came in at $46.2 billion, down from $49.4 billion recorded at year-end 2014.
Net cash generated from operating activities amounted to $531 million, compared with $4.1 billion in the year-ago quarter; while capital spending was $2.2 billion versus $2.4 billion in the first quarter of 2014.
Outlook
Notwithstanding weak first-quarter 2015 results, Vale expects to improve its business on the back of specialized cost-saving plans, productivity enhancement strategies, new growth projects and superior operations in the N4WS mine, going forward. Moreover, supported by efficient disinvestment programs and appropriate capital deployment strategies, the company aims to stabilize its absolute debt level in the upcoming quarters.
Stocks to Consider
With a market capitalization of $41.38 billion, Vale currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include AuRico Gold Inc. AUQ, Banro Corporation BAA and Bunge Limited BG. All three stocks hold a Zacks Rank #2 (Buy).
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