Shares of Vale (VALE, Financial) ended on Friday higher in value by 5.08% to reach $8.07. This was post the Brazilian iron producer hinting at possible cuts in production. With regards to net basis, Vale reported a quarterly loss of $3.12 billion in comparison to a net income of $2.52 billion in the previous year. Vale reported a drop in revenue of 34.3% from $9.6 billion in the first quarter of 2014.
This was the company’s lowest earnings since 2009, thanks to drops in Chinese steel demand. According to Vale, their first quarter earnings before interest, taxes and depreciation fell 61% to hit $1.6 billion from 12 months ago.
Reasons for poor performance
Vale’s reasons for underperformance include the poor performance of the real versus the U.S. dollar. Vale’s revenues were low also due to low prices and lower iron pellet sales. At the company’s two pelletizing units in Oman, output exceeded the output from Q1 2014 but declined in Q4 2014 thanks to maintenance costs. Sales of assets and deals allowed the company’s debt to be reduced by $320 million. The company believes 2015 is when a foundation will be laid for a vibrant and energetic company as more deals are struck and more costs are reduced as well as increased production levels.
Vale’s most profitable sector for revenue was Asia with revenue hitting $3.013 billion from Asia.
Production volumes
Production of copper reached 107,200 tons in the first quarter of 2015. This was a rise of 21.1% from the same period in the last year. This was due to the rise in production at the mining complex in Salobo.
Company profile
Vale SA was formed in 1942 and headquartered out of Rio de Janeiro, Brazil. The company, up until May 2009, was known as Companhia Vale do Rio Doce. Along with its subsidiaries and various companies, Vale also engages in research, production and sale of iron ore and pellets, as well as metals such as nickel, coal, manganese and precious metals both in Brazilian markets and globally. Vale’s Base Metals division produces and extracts non-ferrous minerals, including nickel and copper. The company also has vested interests in energy generation via hydroelectric plants and centres. Vale also specializes in steel production.
Analysis
Analysts are giving Vale a SELL rating. This decision is reached by observation of a few of the company’s weaknesses making it difficult for investors to achieve strong results. Weaknesses such as low debt to equity ratio, weak quick ratio, drop in revenue, poor stock performance and low EPS make for low confidence from investors to allow the stock to regain its performance. Vale’s gross profit margin for the fourth quarter of its fiscal year 2014 has increased when compared to the same period a year ago. Even though sales dropped, net income for the metals company increased. Vale’s weak liquidity with a current quick ratio of 0.85 that shows a clear lack of ability to cover short-term cash demands. The company’s liquidity has also dropped from 12 months ago. During this same period, stockholders’ net worth has dropped by 12.27% from the same quarter the previous year. Key liquidity measurements show the company’s potential to develop financial difficulties for the investors which could arise in the future.
