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Vale's (VALE) Shares Gain as Q4 Earnings Beat Estimates

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Vale S.A. (VALE - Free Report) shares have gained 4% since it reported fourth-quarter 2020 adjusted earnings per share of $1.09, which improved 85% from the prior-year quarter. The bottom line also beat the Zacks Consensus Estimate of 90 cents. This can primarily be attributed to strong performance of Ferrous Minerals business, which was aided by a 17% increase in iron ore prices and 26% higher sales volumes in the quarter under review.

Revenues

Net operating revenues surged 48% year over year to around $14.8 billion. The top line beat the Zacks Consensus Estimate of $14.3 billion.

Of the total net operating revenues, sales of ferrous minerals accounted for 82.6%, base metals comprised 16%, coal contributed 0.9%, and the remaining 0.5% was sourced miscellaneously.

VALE S.A. Price, Consensus and EPS Surprise

Geographically, 75.2% of revenues were generated from Asia, 12.4% from Europe, 7.1% from South America, 2.0% from North America, 2.3% from the Middle East, and 1.0% from Rest of the World.

Operating Performance

In fourth-quarter 2020, cost of goods sold totaled $5,733 million, up 2% year over year. Gross profit surged 109% year over year to $9,036 million. Gross margin was 61.2%, up from 43.5% in the prior-year quarter.

Selling, general and administrative expenditure climbed 35% year over year to $188 million. Research and development expenses declined 3% to $153 million compared with year-ago quarter.

Adjusted operating income was $3,402 million in the reported quarter compared with $2,504 million in the prior-year quarter. Adjusted EBITDA was $4,240 million in the reported quarter compared with $3,536 million in the prior-year quarter.

Pro-forma adjusted EBITDA (excluding expenses related to Brumadinho and COVID-19) advanced 95% year over year to $9,103 million. This was primarily driven by strong performance of Ferrous Minerals business aided by 17% higher realized prices and 26% rise in sales volumes. Higher nickel and copper realized prices, and increased nickel by-product credits, primarily due to higher volumes of copper, rhodium and palladium also contributed to the improved performance.

However, higher Ferrous Minerals costs and expenses, mainly due to higher demurrage costs and rising cost of third party ore purchases (partially offset by the dilution of costs and expenses on higher volumes and lower unit freight costs), negated these benefits.

Balance Sheet & Cash Flow

Vale exited 2020 with cash and cash equivalents of $13.5 billion compared with $17 billion at the end of 2019. Gross debt at the 2020 end stood at $13.36 compared with $13.1 billion at the end of 2019. In 2020, net cash generated from operating activities totaled $14.3 billion compared with $12.1 billion in the prior-year. Capital spending amounted to $4.4 billion during 2020 compared with $3.7 million in the prior year.

2020 Results

Vale’s adjusted earnings per share in 2020 was $2.11, reflecting an improvement of 34% from the prior-year’s figure of $1.57. The bottom line beat the Zacks Consensus Estimate of $1.90. Sales rose 6% year over year to $40 billion, which surpassed the Zacks Consensus Estimate of $38.9 billion.

Price Performance

In the past year, shares of Vale have gained 71.6%, in line with the industry.

Zacks Rank & Stocks to Consider

Vale currently sports a Zacks Rank #3 (Hold).

Some better-ranked stocks worth considering in the basic materials space include Fortescue Metals Group Limited (FSUGY - Free Report) , BHP Group (BHP - Free Report) and Impala Platinum Holdings Limited (IMPUY - Free Report) . While Fortescue Metals and BHP Group sport a Zacks Rank #1 (Strong Buy), Impala Platinum Holdings carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Fortescue has a projected earnings growth rate of 84.3% for the current fiscal. The company’s shares have soared 210% in a year.

BHP Group has a projected earnings growth rate of 65.6% for the current fiscal year. The company’s shares have appreciated 79% in a year.

Impala Platinum Holdings has an expected earnings growth rate of 195.9% for the current fiscal. The company’s shares have rallied 104% in the past year.

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