Vale S.A. ( VALE - Analyst Report ) released its financial results for the third quarter 2012, on October 24, 2012. Results weakened in the quarter with earnings per ADR falling 66% year over year and 38% sequentially to US$0.32 per ADR (on a fully diluted basis).

Results also failed to meet the Zacks Consensus Estimate of 52 cents per ADR. Weak macro conditions severely impacted demands that in turn hurt results.

Revenue: Operating revenue plunged 34.5% year over year to $10,963 million and also lagged behind the Zacks Revenue Estimate of $12,240 million. Revenue also registered sequential decline of 9.8%.

Of the total revenue, sales of ferrous minerals accounted for 67%; coal sales 2.1%; base metals 16.1%; fertilizer nutrients 10.0%; logistics services 4.1%; and the remaining 0.8% came from miscellaneous sources.

Geographically, 23.0% of revenue was generated from South America, 52.3% from Asia, 4.3% from North America, 18.0% from Europe, 1.3% from the Middle East and 1.1% from Rest of the World.

Margins: In the third quarter, cost of goods sold totaled $6,128 million compared with $6,252 million recorded in the year-ago quarter. SG&A and R&D expenses were $519 million and $360 million compared with $654 million and $440 million in the year-ago quarter, respectively.

Operating income measured by adjusted EBIT was $3,189 million compared with $8,373 million in the prior-year comparable quarter. Operating margin, as measured by adjusted EBIT margin was 29.1% in the third quarter 2012 (excluding non-recurring losses.), down from 50.0% in the previous year quarter. Adjusted EBITDA was $4,280 million in the quarter, down from $9,631 million in the prior-year quarter.

Balance Sheet/Cash Flow: Exiting the third quarter of 2012, Vale’s cash and cash equivalents were recorded at $7,951 million versus $4,083 million in the previous quarter. Long-term debt increased to $42,392 million as compared with $38,429 million in the previous quarter.

Net cash generated from operating activities was $5,669 million versus $4,211 million in the year-ago quarter while capital spending came in at $4,984 million versus $3,711 million in the third quarter 2011.

Vale S.A. is one of the world’s largest producers and exporters of iron ore and pellets. The company keeps improving 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 ‘Underperform’ recommendation on the stock. Vale holds a Zacks #5 Rank, which translates into a short-term (1-3 months) 'strong Sell' rating.