Vale (VALE) Q3 Earnings Surpass Estimates, Revenues Miss
Vale S.A. VALE reported third-quarter 2021 adjusted earnings per share of $1.16, which surpassed the Zacks Consensus Estimate of $1.08. The bottom line improved 38% from 84 cents reported in the prior-year quarter. This upside can primarily be attributed to strong performance of the Ferrous Minerals business, driven by higher volumes and year-over-year iron ore prices. Gains from higher year on year nickel and copper prices were offset by lower production due to labor disruption at Sudbury.
Including one-time items such as impairment charges in the coal business, earnings in the quarter was 76 cents compared with 57 cents in the year-ago quarter.
Net operating revenues improved 18% year over year to around $12.7 billion but missed the Zacks Consensus Estimate of $14.1 billion. Net operating revenues from Ferrous Minerals surged 23% year over year to $10.7 billion. Base Metals’ net operating revenues declined 13% to $1.6 billion. The Coal segment’s revenues soared 242% year over year to $352 million.
Even though iron ore prices have lost steam through the quarter due to weak demand in China on account of its intensified curbs on steel production, it still remains higher compared to the prior-year quarter. Nickel and copper prices were higher compared to the prior-year quarter. While sales volumes for iron ore, manganese, metallurgical and thermal coal were higher than year-ago levels, volumes for pellets, nickel, copper declined.
VALE S.A. Price, Consensus and EPS Surprise
VALE S.A. price-consensus-eps-surprise-chart | VALE S.A. Quote
In third-quarter 2021, cost of goods sold totaled $5.8 billion, up 21% year over year. Gross profit increased 15% year over year to $6.8 billion. Gross margin was 54% compared with 55% in the prior-year quarter.
Selling, general and administrative expenditure declined 9% year over year to $115 million. Research and evaluation expenses climbed 29% to $136 million from the year-ago quarter.
Adjusted operating income was $6.2 billion in the reported quarter, reflecting growth of 17% from the prior-year quarter. Adjusted EBITDA was $6.9 billion in the reported quarter compared with $6.1 billion in the prior-year quarter.
Pro-forma adjusted EBITDA (excluding expenses related to Brumadinho and COVID-19) advanced 14% year over year to $7.1 billion.
Ferrous Minerals’ EBITDA increased 15% year over year to $6.7 billion — the highest EBITDA result for a third quarter since 2012. Base Metals EBITDA slumped 36% to $505 million from the last-year quarter. Coal EBITDA was $32 million against a negative $213 million in third-quarter 2020.
Balance Sheet & Cash Flow
Vale exited the third quarter of 2021 with cash and cash equivalents of $10.8 billion compared with $8.8 billion at the end of the last-year quarter. Free cash flow in the quarter was around $7.8 in the quarter under review.
In September, the company paid dividends of $7.4 billion, bringing the year-to-date total to $13.5 billion. Vale’s board of directors approved a new share buyback program of up to 200 million shares, equivalent to 4.1% of the currently outstanding shares of the company.
Gross debt at the quarter-end was $11.9 billion compared with $13.4 billion at the end of the last-year quarter. In the reported quarter, net cash generated from operating activities was around $9 billion compared with $4.8 billion in the prior-year quarter.
In sync with its “value over volume” approach, Vale has decided to lower its supply of high-silica low-margin products by around 4 Mt in the fourth quarter, due to weak demand and low prices. It added that if this scenario persists, it will reduce the offering of low-margin products in 2022 by around 12-15 Mt.
Per the World Steel Association, steel demand will go up 4.5% year over year in 2021 and further 2.2% in 2022. Apart from China, the steel sector will gain on pent-up demand, and rising business and consumer confidence. This will continue to support iron ore demand. However, weak demand in China will remain a headwind.
Meanwhile, China’s curb on steel production will hurt coking coal demand. Prices for the thermal coal market will be supported in the fourth quarter by demand and supply imbalance. For nickel, the company anticipates a deficit in 2021. Growth in stainless steel production and a shift toward the electrification of the world economies will continue to support demand for the metal. Copper market is also expected to show a deficit this year and prices are expected to ride on robust demand and persisting supply issues.
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In the past year, shares of Vale have gained 18.8%, compared with the industry’s growth of 18.6%.
Zacks Rank & Stocks to Consider
Vale currently carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the basic materials space are Olin Corporation OLN, Nucor Corporation NUE and Bunge Limited BG. All of these stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Olin has an expected earnings growth rate of around 740% for the current fiscal. The company’s shares have surged a whopping 229% in the past year.
Nucor has a projected earnings growth rate of around 583% for the current year. The company’s shares have soared 128% in a year.
Bunge has an expected earnings growth rate of around 26% for the current year. The company’s shares have appreciated 60% in the past year.
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