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Vale’s 1Q18 Earnings Miss on Lower Prices and Higher Costs

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Vale’s 1Q18 results miss expectations

Vale (VALE) released its 1Q18 results on April 25, 2018, after the markets closed. The company reported net earnings of $1.6 billion in 1Q18, 17% lower than what the consensus was expecting. Its earnings also dropped 36% year-over-year (or YoY) due to lower iron ore prices and higher costs. The company reported that while iron ore prices fell 12.4% YoY, costs and expenses rose 10% in the same period. Its revenues of $8.6 billion also missed market expectations by $100 million.

Vale already released production figures for 1Q18. Its iron ore production during the quarter was weaker due to heavy rains. It still maintained its guidance for 390 million tons of production in 2018.

Vale’s CEO, Fabio Schvartsman, mentioned in the results release, “We are pleased that Vale has shown remarkable flexibility and performance during a very complex first quarter 2018, which was crucial to achieve the same level of EBITDA as 4Q17, despite the challenge of seasonally lower volumes.”

Debt reduction on track

Another important update that investors were on the lookout for was progress on debt reduction. The company reported net debt of $14.9 billion at the end of March 2018, which is 35% lower YoY and the lowest level since 2Q11. It is also a marked improvement as compared to the net debt of $18 billion at the end of 2017. Vale is aiming to reduce the net debt load to $10 billion “in the short-term.”

A more predictable company?

Vale has been trying to be more transparent and predictable. It has also announced a new dividend policy, which seeks to distribute a minimum of 30% of adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) minus sustaining capital expenditure. It has also come a long way in its corporate governance policies and transparency through various measures including corporate restructuring and a governance overhaul. One reason Vale has been trading at a discount to peers (XME) such as BHP Billiton (BHP), Freeport McMoRan (FCX), and Rio Tinto (RIO) is its lower transparency and predictability. With improved corporate governance policies, the company expects to see a valuation re-rating.

We’ll discuss more on that during the company’s 1Q18 earnings call, which starts at 11:00 AM EST on April 26, 2018. Keep visiting Market Realist’s Commodities page for in-depth analysis of Vale after its 1Q18 earnings call.

And check out all the data we’ve added to our quote pages. Now you can get a valuation snapshot, earnings and revenue estimates, and historical data as well as dividend info. Take a look!

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