Vale Reports Robust Q2 Results Backed By Strong Iron Ore Volume & Pricing, Growth Momentum Likely To Continue

by Trefis Team
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Vale (NYSE: VALE) released its second-quarter results on 25th July and conducted a conference call with analysts the following day. Although the company missed the analysts earnings forecast, its second-quarter results displayed significant strength broadly being driven by the company’s S11D ramp up. The company reported underlying earnings of $76 million in comparison to earnings of  $16 million reported in the same period last year. Revenue also displayed a significant growth rate of about 19% year-on-year (y-o-y) and was reported at $8.62 billion. Record level iron ore and pallet output coupled with premium iron ore pricing led to the company’s strong performance for the quarter.

Vale reported a 5.8% y-o-y increase in its volume iron ore sales for the second quarter, largely driven by a higher production level achieved in the company’s S11D mine. The company was able to achieve record level volume output despite a nationwide truck drivers’ strike experienced by the company in May. Vale was able to overcome such an unfavorable event which disrupted the production and logistics facilities across Brazil for 12 days largely through its flexible system. Vale’s S11D’s total output for the quarter alone was up by almost 23% sequentially which significantly catered to the company’s overall iron ore volume growth for the quarter. 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 additionally benefited from higher iron ore prices as the Chinese demand remained strong throughout the second quarter with strong machinery and construction sector activity in the country. The company reported almost a 22% increase in its realized iron ore prices for the quarter and maintained its optimistic outlook on iron ore prices for the remainder of the year. Iron ore prices are expected to range higher through the second half of the year as China’s winter restrictions resume.

Vale’s bottom line additionally benefited from lower interest expense as the company continued to pursue its objective of strengthening its balance sheet. Vale reported a net debt of $11.5 billion in Q2’18, the lowest level since Q2 ’11 as reported by the company. Vale has additionally announced a new shareholder remuneration program along with $1 billion of share buyback to focus on achieving a higher level of investor return.

Thus, based on the aforementioned favorable aspects, Vale’s outlook for the remainder of the year appears to be strong and we have updated our base case estimates on the basis of the same. You can modify our assumptions by using our interactive dashboard analysis: Vale’s Second-Quarter Results Suggest Slightly Higher Return Potential For Investors to arrive at your own fair price estimate for the company.


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