What To Expect From Vale’s Second-Quarter Results

July 23rd, 2018 by Trefis Team
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Vale (NYSE: VALE) will release its second-quarter results on 25th July 2018 and conduct a conference call with analysts the following day. Consensus market estimates expect the company to post an EPS (Non-GAAP) of $0.26 and a revenue of $8.63 billion, 44% and 19% respectively higher than the reported numbers a year ago. The company’s performance for the quarter is expected to benefit from its record iron ore and pellet output and a higher premium portfolio mix. Additionally, the company’s bottom line is expected to be favorably impacted by lower debt levels.

Vale reported a 5.8% year-on-year (y-o-y) increase in volume iron ore sales for the second quarter, largely driven by a higher production level achieved in Vale’s S11D mine. Higher sales volume were achieved by the company despite a nationwide truck drivers’ strike experienced in the country in May, which disrupted the production and logistics facilities across Brazil for 12 days. Vale’s S11D’s output for the quarter alone was up by almost 23% sequentially which significantly catered to the company’s overall iron ore volume growth.

Additionally, higher proportionate volume growth from Vale’s S11D mine has increased the company’s share of premium product offerings, enabling the company to benefit from increased market premiums. Vale reported that its share of premium products (pellets, Carajás, blended ores, pellet feed, and sinter feed low alumina) increased from 68% of its total sales in Q2 ’17 to 77% in Q2 ’18. As a consequence of which, the company was able to maximize the contribution of quality and average premium from US$ 1.2/t in 2Q ’17  to US$ 7.1/t in 2Q ’18.

Overall iron ore prices, however, are expected to remain relatively weak during the second quarter due to global trade war concerns, specifically those impacting China. China accounts for more than half of the global steel output and concerns over the country’s steel export sustainability has deterred the confidence in the country’s steel production. Since iron ore is used as a primary raw material in steel production, a pessimistic outlook on steel has, in turn, negatively impacted iron ore prices. Thus, although the company would be able to demand a premium for its high-grade products, iron ore prices, in particular, are expected to be relatively lower sequentially and relatively flat on a year-on-year basis.
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The company is expected to face cost headwinds due to a general inflationary environment. However, Vale’s substantially lower amounts of debt are expected to outweigh the cost impact and provide a significant boost to its bottom line. Vale reported a net debt of $14.9 billion as of March 31 ’18, the lowest since 2Q11 as asserted by the company. Our outlook for the company’s full-year 2018 performance is highlighted in our interactive dashboard What To Expect From Vale in 2018. You can make changes to our assumptions in our interactive platform to arrive at your own fair price estimate for the company.

 

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