Why Vale’s Results Are a Miss on Expectations

Vale’s results were a miss on expectations with a reported adjusted EPS loss of $0.05 per share. This is below the consensus of $0.19 per share.

Anuradha Garg - Author

Mar. 19 2015, Published 3:34 p.m. ET


Miss on COGS

In this article, we’ll take a look at Vale S.A.’s (VALE) results and why they’re a miss on expectations. Vale reported an adjusted earnings per share (or EPS) loss of $0.05 per share. This is below the consensus of $0.19 per share.

Vale’s EBITDA (earnings before interest, tax, depreciation, and amortization) of $2.2 billion was also below consensus of $2.5 billion. It reported COGS (cost of goods sold) of $25.1 billion in 2014, which is ~4% higher than $24.2 billion in 2013.

Vale’s EBITDA was impacted by write down inventories, tax credits, and environmental obligations. EBITDA was a miss in divisions, including iron ore, pellets, nickel, copper, and fertilizers. The miss was mainly due to higher-than-expected COGS.

Selling, general, and administrative (or SG&A) expenses were also higher than market expectations. As a percentage of sales, SG&A increased to 3.4% in 4Q14 compared to 3.0% in 3Q14 and 2.7% in 4Q13.

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Higher unit costs in iron ore

Vale’s major miss was because of higher unit costs in its iron ore division. It reported a unit cost of $23.20 in 4Q14, which is higher than the market expectation of $20 to $21 per ton. Vale’s management attributed the higher unit costs to anticipated maintenance work in 4Q14. The company expects the cash cost per unit to fall by $1 per ton or more in 1Q15.

Most of Vale’s peers delivered a beat on market expectations. Cliffs Natural Resources (CLF) and BHP Billiton (BHP) delivered a beat on cost improvements, while Rio Tinto’s (RIO) results were a beat on improved sales and revenues.

All listings of BHP, RIO, and Vale make up 17.8%, 11.1%, and 2.7%, respectively, of the iShares MSCI Global Metals & Mining Producers ETF (PICK). The SPDR S&P Metals and Mining ETF (XME) also invests in some of these stocks.


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