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Vale’s 3Q15 Results Were below Estimates, but Stock Rose



Snapshot of Vale’s 3Q15 results

Vale (VALE) reported its 3Q15 results on October 22, 2015. Overall results were below market expectations. The company reported a net loss of $2.1 billion in 3Q15 with an adjusted EPS (earnings per share) of -$0.19 due to the devaluation of the Brazilian real and derivative losses. Vale’s adjusted EPS is far lower than the consensus EPS of $0.22. However, Vale’s adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) was down 15% quarter-over-quarter, as expected by Wall Street analysts, primarily due to lower realized sales prices.

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Reaction from the market

Vale’s stock price rose 5% on the day of its results announcements. The stock gain was due to better-than-expected cost reductions, iron ore production, and debt reduction. Overall, the weak metal prices have impacted cash flow and stretched the leverage for iron ore miners like Vale, which has pulled down the share prices of iron ore miners this year.

Peer performance

Other major iron ore companies are Rio Tinto (RIO), BHP Billiton (BHP), Fortescue Metals Group (FSUGY), and Cliffs Natural Resources (CLF). These five iron ore companies contribute more than 70% to the seaborne iron ore supply.

Recently, BHP Billiton (BHP) and Rio Tinto (RIO) announced their production numbers for 3Q15, and their share prices reacted negatively to production numbers and fell 1% and 2%, respectively, after the announcement.

What we’ll cover in this series

In this series, we’ll analyze Vale’s 3Q15 earnings. We’ll look at its segment-wise production, cost, price realization, and margins. We’ll also discuss some important points such as leverage, divestment, and future outlook. At the end of this series, we’ll talk about analysts’ ratings and potential upside at current share price.

The iShares MSCI Brazil Capped ETF (EWZ) invests in large-cap and mid-cap companies in Brazil. Vale forms 2.8% of EWZ’s holdings. CLF forms 3.3% of the SPDR S&P Metals and Mining ETF’s (XME) holdings.


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