(Rewrites with executive and analyst comments, share drop)
By Guillermo Parra-Bernal and Marta Nogueira
SAO PAULO/RIO DE JANEIRO, April 27 Shares in
Vale SA slumped the most in two weeks on Thursday, as executives
signaled lackluster trends for iron ore prices this year and
investors reacted to a first-quarter profit miss with
Preferred shares, world No. 1 iron ore producer
Vale's most widely traded class of stock, shed as much as 4
percent. The decline thwarted a recovery in the stock that had
made gains this week on expectations Vale would report a near
record quarterly profit.
On a results conference call, company executives said supply
and demand of the main ingredient for steel look balanced,
helping prices stay at $70 reais per tonne or less. In February,
Vale's head of ferrous minerals Peter Poppinga expected prices
hovering around $80 a tonne this year.
While both Poppinga and outgoing Chief Executive Officer
Murilo Ferreira gave a rosy outlook for productivity metrics and
extraction costs, some investors have questioned Vale's over
reliance on iron ore price behavior to boost profitability and
"With a much lower iron ore price nowadays, and a weaker
outlook for the second half, in our view, and no conviction on a
rebound in base metal prices, we fear first-quarter numbers
could have marked a peak for this year," said Leonardo Correa, a
senior mining analyst with Banco BTG Pactual.
Net income totaled $2.490 billion, well below consensus
estimate of $3.325 billion, reflecting the impact of heavy rains
that slowed output in some Brazilian mines and rising financial
expenses. It compared with $525 million in the prior three
months and $1.776 billion a year earlier.
Last week, Vale said first-quarter iron ore output fell 6.7
percent as seasonal rainfalls in the so-called northern system,
which groups the Carajás, Serra Leste and S11D mines in northern
Brazil, hampered extraction. Revenue slipped on a sequential
basis, even as realized prices rose 9 percent from the fourth
Adjusted earnings before interest, taxes, depreciation and
amortization, or EBITDA, hit $4.308 billion, below a consensus
estimate of $4.996 billion compiled by Thomson Reuters.
Despite the profit miss, Vale is taking advantage of higher
realized prices on an annual basis to slow the pace of asset
sales to cut debt.
Ferreira, who will be replaced by Klabin SA CEO Fabio
Schvartsman next month, said cargo vessels and a fertilizer
plant are priorities for future divestitures. Leverage metrics
improved significantly during the quarter, and Vale managed to
earmark less money for capital spending this year.
"We'll keep deploying more of the free cash flow we generate
to cut debt," Ferreira said, signaling his strategy will be
embraced after his planned departure in May.
Higher ore recovery last quarter also helped Vale generate
$2.454 billion in free cash flow - the money left for bond and
shareholders after all expenses are paid.
Net debt fell to $22.777 billion in March, from $25.042
billion in December. Vale wants the indicator between $15
billion and $17 billion this year.
(Additional reporting by Gustavo Bonato and Roberto Samora in
São Paulo; Editing by Mark Potter and Grant McCool)