Back to top

Image: Bigstock

Vale (VALE) to Report Q2 Earnings: What's in the Cards?

Read MoreHide Full Article

Vale S.A (VALE - Free Report) is scheduled to report second-quarter 2021 results on Jul 28, after the market close.

Q2 Estimates

The Zacks Consensus Estimate for second-quarter total sales is pegged at $16.7 billion, indicating growth of 123% from the year-ago quarter. The consensus mark for earnings currently stands at $1.47, suggesting a whopping improvement of 568% from the prior-year quarter. The estimate has gone up 7% over the past 30 days.

Q1 Results

Vale’s first-quarter earnings and revenues were higher than the year-ago quarter and also beat the respective Zacks Consensus Estimate. This can primarily be attributed to record performance of Ferrous Minerals business, aided by higher iron ore prices. The company has surpassed earnings estimates in three of the trailing four quarters and missed once. It has a trailing four-quarter earnings surprise of 4.08%, on average.

VALE S.A. Price and EPS Surprise VALE S.A. Price and EPS Surprise

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

Factors to Note

Vale recently provided second-quarter-2021 production update, which offers a sneak peek as to how the company is likely to fare in the to-be-reported quarter. Iron ore production for second-quarter 2021 was 75.7 million tons (Mt), 12% higher than the year-ago quarter. It marked an 11% sequential increase aided by higher volumes from Brucutu, improvement of weather-related conditions in Serra Norte and a strong performance in Serra Leste. Increased productivity in Itabira Complex, higher third-party purchase and wet processing production in Fábrica during the tests to resume beneficiation plant operations contributed to the improvement as well. These gains were partially offset by the interferences caused by the installation and commissioning of the first of four jaspilite crushers in S11D. The company’s pellet production was up 13% year over year to 8 Mt in the quarter. Sales volume of iron ore fines and pellets was up 22% to 74.9 Mt in the quarter under review.

Iron ore prices have been rallying in the second quarter as demand has been outstripping supply. Demand for the primary steelmaking commodity has been increasing this year on strong demand from China as steel production has been gaining steam in the country. This combined with persistent concerns over a supply shortage fueled the rally in iron ore prices. Iron generates around 80% of Vale’s revenues. Thus, higher iron production and prices are likely to have contributed to Vale’s top-line performance in the quarter to be reported.

With regard to base metals, which collectively contribute around 16% to the company’s revenues, production of nickel declined 14% year over year owing to labor disruption at Sudbury and unscheduled maintenance in Clydach Nickel Refinery. Copper production was down 13% year over year to 73.5 kt due to labor disruption in Sudbury and delays in mining at Voisey’s Bay, partially mitigated by a more robust performance in Salobo on account of the ramp-up of mine maintenance activities and better performance at Sossego operations. Cobalt was up 34.2%, while coal production improved 63% from the prior-year quarter. Meanwhile, production of manganese ore came in 24.2%, lower than the prior-year quarter due to adjustments in the mining plan to ensure the safety and sustainability of underground operations at the Urucum mine. Gold production was down 15.8% year over year. Higher year-over-year metal prices might have somewhat negated the impact of lower production for most of these metals.

Vale has been focusing on maintaining its ‘”value over volume” approach for the iron ore business. The company remains committed to delivering the highest possible margins by managing extensive supply chain and flexible product portfolio. It has been focusing on controlling costs. These efforts might have favored the second-quarter performance.

What the Zacks Model Unveils

Our proven model does not conclusively predict an earnings beat for Vale this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Vale is 0.00%.

Zacks Rank: The company currently carries a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price Performance

In a year’s time, shares of Vale have gained 34.3%, compared with the industry’s rally of 95.4%.

Zacks Investment Research
Image Source: Zacks Investment Research

Stocks to Consider

Here are some Basic Materials stocks, which you may consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases.

Westlake Chemical Corporation (WLK - Free Report) has an Earnings ESP of +6.05% and a Zacks Rank #1, currently.

LyondellBasell Industries N.V. (LYB - Free Report) has an Earnings ESP of +9.93% and a Zacks Rank of 1, currently.

Celanese Corporation (CE - Free Report) has a Zacks Rank #2 and an Earnings ESP of +7.01%, at present.