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What Just Happened to BHP Billiton’s Earnings Estimates?

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Lower commodity prices

Commodity prices (USCI)—especially for iron ore—have been under pressure recently. Increasing inventories amid a strong supply outlook for iron ore is now taking a toll on prices.

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Revenue and earnings estimates

According to the data compiled from estimates, analysts expect BHP Billiton (BHP) to deliver revenues of $39.7 billion in fiscal 2017 (ending June 30, 2017), which would mean an implied gain of 28.4% YoY (year-over-year). The growth rate from here is expected to stabilize. BHP’s fiscal 2018 and fiscal 2019 revenues imply a growth of 0.6% and -0.5%, respectively.

The estimate for the company’s EBITDA (earnings before interest, tax, depreciation, and amortization) is $21.6 billion, implying an EBITDA margin of 54.4%, as compared to 40% in fiscal 2016. Due to the strength of commodity prices, especially that of iron ore in 2016 and the first quarter of 2017, analysts were expecting higher revenues in 2017.

Some of these expectations have been tempered down due to the recent weakness in iron ore prices. The EBITDA projections for fiscal 2018 and fiscal 2019 imply declines of 4.6% and 3.1%, respectively.

Recent revision in estimates

The revenue estimates for BHP’s fiscal 2017 have seen a downward revision of 3% in the past month alone. The company’s EBITDA estimates have also seen a similar downgrade during the period. The downward revision is most likely due to weaker-than-expected iron ore prices.

Mining giants Glencore International (GLNCY), Southern Copper (SCCO), Teck Resources (TCK), and Freeport-McMoRan (FCX) have also seen their estimates revised downward amid the recent weakness in commodity prices.

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