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Vale S.A. ((VALE - Analyst Report)) reported disappointing financial results for the second quarter of 2012 on July 25. The company’s net earnings in the quarter were 52 cents per ADR (on a fully diluted basis), missing the Zacks Consensus Estimate of 75 cents per ADR. The results also declined drastically from $1.22 per ADR reported in the year-ago quarter. The earnings suffered a negative effect of lower pricing environment alongside staggering operational issues in the base metals and coal businesses.
Revenue: Gross operating revenue plunged 20.8% year over year to $12,150 million and also lagged behind the Zacks Revenue Estimate of $13,568 million. However it registered a sequential rise of 7.2% in the reported quarter.
Of the total revenue, sales of ferrous minerals accounted for 71.3%; coal sales 2.3%; base metals 14.7%; fertilizer nutrients 7.6%; logistics services 3.4%; and the remaining 0.9% came from miscellaneous sources.
Geographically, 20.7% of revenue was generated from South America, 51.3% from Asia, 5.6% from North America, 19.1% from Europe, 2.2% from the Middle East and 1.0% from Rest of the World.
Margins: In the second quarter, cost of goods sold totaled $6,015 million compared with $5,721 million recorded in the year-ago quarter. SG&A and R&D expenses were $615 million and $359 million compared with $434 million and $363 million in the year-ago quarter, respectively.
Operating income measured by adjusted EBIT was $3,923 million compared with $7,747 million in the prior-year comparable quarter. Operating margin, as measured by adjusted EBIT margin, was 36.2% in 2Q12 (excluding non-recurring losses.), down from 51.7% in the previous year quarter. Adjusted EBITDA was $5,119 million in the quarter, down from $9,069 million in the prior-year quarter.
Balance Sheet/Cash Flow: Exiting the second quarter of 2012, Vale’s cash and cash equivalents were recorded at $4,083 million, down sequentially from $4,922 million. Long-term liabilities increased to $38,429 million from $39,250 million in the previous quarter.
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 rival companies, such as Rio Tinto plc ((RIO - Analyst Report)) and BHP Billiton Ltd ((BHP - Analyst Report)).
We are maintaining our long-term ‘Neutral’ recommendation on the stock. Vale holds a Zacks #3 Rank, which translates into a short-term (1-3 months) 'Hold' rating.
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