Vale S. A. (VALE) reported excellent results for the third quarter of fiscal 2010 with an EPADS of $1.31, a huge leap from just 31 cents in the year-ago quarter. On a sequential basis, EPADS also increased from 70 cents in the second quarter of fiscal 2010. It beat the Zacks Consensus Estimate of $1.03.
Net earnings also increased to $6,038 million from $1,677 million in the corresponding quarter of 2009 and $3,705 million during the previous quarter. This huge jump was attributable to the increase in the demand for minerals and metals based on the global economic recovery as well as the significant increase in metal prices, which more than doubled compared with the year-ago quarter.
Net operating revenues were $14,102.0 million, almost double of $6,706.0 million in the third quarter of 2009 and $9,658.0 million in the previous quarter. Reported revenue also surpassed the Zacks Consensus Estimate of $13,375 million. Revenue generated from the sales of ferrous minerals accounted for 76.2% of total revenue, while non-ferrous minerals contributed 18.7%; logistics services 2.8%; coal 1.5% and the rest accounted for 0.8%.
Production of iron ore, responsible for 60.2% of total revenue in the quarter amounted to 68.04 metric tons, up 15.1% from the previous quarter. Geographically, 19.6% of revenue was generated from the domestic market, 56.4% of revenue from Asia, 3.5% from North America, 17.2% from Europe, and 3.3% from the rest of the world.
Gross margin grew to 63.7% from 46.5% in the year-ago quarter and 57.3% in the previous quarter. EBITDA margin grew to 62.5% from 44.9% in the year-ago quarter and 57.7% in the second quarter of 2010. EBITDA more than doubled to $8,815 million from $3,014 million in the third quarter of 2009 and $5,577 million in the previous quarter.
Total debt increased to $25.3 billion, with an average maturity of 9.6 years and an average cost of 5.25% per year from $24.0 billion in the previous quarter. Cash and cash equivalents grew to $9.7 billion from $6.2 billion in the previous quarter based on higher cash flow. Net debt fell to $15.5 billion from $17.7 billion in the previous quarter.
Operating cash flows increased as much as twice the previous quarter. It reached $6.8 billion from $3.7 million in the previous quarter based on the growth in net income.
Vale did not provide guidance for the upcoming quarter and the fiscal years 2010 and 2011, but the Zacks Consensus Estimate remains at 96 cents per ADS for the fourth quarter and $2.99 per ADS for fiscal 2010. Estimates are almost three times that of the fourth quarter and fiscal year 2009. This justifies our outlook on the company based on the recent market recovery and the increased metal consumption in China, the biggest iron-ore importer.
The increase in the demand for minerals and metals has forced up metal prices to an all-time high. We believe that the company’s risk/reward profile is balanced and we see limited upside from the current. Hence, we remain Neutral on the ADS. The marginal estimate revision of $1.00 per ADS for fiscal 2011 compared to fiscal 2010 by the analysts justifies our long term recommendation. In the shorter term also, Vale currently retains its “Hold” rating, which equates to a Zacks #3 Rank.
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