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Vale (VALE) Q1 Earnings Beat, Up Y/Y on High Iron Prices

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Vale S.A. (VALE - Free Report) reported first-quarter 2021 adjusted earnings per share of $1.13, which surpassed the Zacks Consensus Estimate of $1.01. The bottom-line figure also improved massively from 7 cents reported in the prior-year quarter. This can primarily be attributed to record performance of Ferrous Minerals business, aided by higher iron ore prices.

Revenues

Net operating revenues surged 81% year over year to around $12.6 billion, which beat the Zacks Consensus Estimate of $12.5 billion. Net operating revenues from Ferrous Minerals soared 98% year over year to $10.5 billion. Base Metals’ net operating revenues improved 49% to $1.99 billion. The Coal segment’s revenues declined 38% to $92 million.
 

VALE S.A. Price, Consensus and EPS Surprise

VALE S.A. Price, Consensus and EPS Surprise

VALE S.A. price-consensus-eps-surprise-chart | VALE S.A. Quote

Iron ore prices were on an uptrend through the reported quarter aided by a combination of seasonal supply reduction, low inventories across the supply chain and strong demand in China. Coal prices were higher owing to the soft ban on Australian coal imposed by China. Nickel and copper prices were also higher compared to the prior-year quarter. While sales volumes for iron ore and nickel were higher than year-ago levels, volumes for thermal coal, metallurgical coal and copper declined.

Operating Performance

In first-quarter 2021, cost of goods sold totaled $4,627 million, up 8% year over year. Gross profit soared 198% year over year to $8,018 million. Gross margin was 63.4%, up from 38.6% in the prior-year quarter.

Selling, general and administrative expenditure declined 8.7% year over year to $105 million. Research and development expenses increased 5% to $100 million compared with year-ago quarter.

Adjusted operating income was $7,619 million in the reported quarter compared with $2,067 million in the prior-year quarter. Adjusted EBITDA was $8,350 million in the reported quarter compared with $2,882 million in the prior-year quarter.

Pro-forma adjusted EBITDA (excluding expenses related to Brumadinho and COVID-19) advanced 178% year over year to $8,467 million. It marked a record for a first quarter, driven by higher commodity prices. Ferrous Minerals’ EBITDA soared 175% year over year to a record $7.811 billion on higher iron prices. Base Metals EBITDA improved 82% to $1 billion from the last-year quarter. Coal EBITDA was a negative $159 million compared with a negative $158 million in first-quarter 2020.

Balance Sheet & Cash Flow

Vale exited the first quarter of 2021 with cash and cash equivalents of $12.9 billion compared with $13.5 billion at the end of 2020. Gross debt at the quarter end stood at $12.2 billion compared with $13.5 billion at the end of 2020. In the reported quarter, net cash generated from operating activities totaled $7 billion compared with $2 billion in the prior-year quarter.

Outlook

Per the company, supply concerns that triggered iron ore prices through first-quarter 2021 are likely to continue in the second quarter as well. While volumes are likely to pick up in the second half of the year, production cuts due to environmental restrictions in China are likely to weigh on demand. However, apart from China, the steel sector has been improving at a rapid pace. This will continue to support iron ore demand.

Improvement in global steel production should also benefit seaborne coking coal demand. It remains uncertain as to how long Australian coal will be restricted in China and remains the key factor that will impact prices. For the thermal coal market, while seasonally lower power demand remains a concern, supply disruptions due to weather conditions will support prices. Lower domestic coal supply and the forecast of lower hydropower in China this summer would support coal imports and international coal prices. For nickel, the company anticipates a small surplus in 2021. Copper prices are expected ride on robust demand and persisting supply issues.

Price Performance

In the past year, shares of Vale have gained 146%, compared with the industry’s growth of 142%.

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 Impala Platinum Holdings Limited (IMPUY - Free Report) , Cabot Corporation (CBT - Free Report) and Nucor Corporation (NUE - Free Report) . All of these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Impala Platinum Holdings has an expected earnings growth rate of 198% for the current fiscal. The company’s shares have soared 267% in the past year.

Cabot Corporation has a projected earnings growth rate of 93% for the current fiscal year. The company’s shares have appreciated 65% in a year.

Nucor has a projected earnings growth rate of 190% for the current fiscal. The company’s shares have rallied 99% in a year.

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