BHP Billiton 1H15 Results Weak, Down Y/Y On Headwinds - Analyst Blog

Mining giant, BHP Billiton Limited (BHP) reported weak financial results for first-half fiscal 2015, ended Dec 31, 2014. Earnings per American Depositary Share (“ADS”) came in at $1.60, down 47.3% from $3.03 per ADS earned a year ago.

Revenues: Revenues for first-half fiscal 2015 slipped 11.9% year over year to $29.9 billion from $33.9 billion in the year-ago period. The decline was caused by a significant fall in market price of the company’s major commodities.  

We believe that existing market headwinds were responsible for the year-over-year decline in the company’s half-yearly revenues and ADS earnings.

Production Details: BHP Billiton reported record yields in five commodities and eight operational facilities first-half fiscal 2015. However, productivity volumes of copper, aluminum and nickel in first-half fiscal 2015 declined from the year-ago tally.

Production of coal, manganese alloys, petroleum, natural gas, crude oil and condensate increased from their respective year-ago values. The improvement was achieved on the back of efficient output gained from the company’s Queensland and Illawarra coal mines as well as superior smelting activities.  

BHP Billiton claimed that productivity volumes of some commodities were adversely affected by certain market headwinds such as equipment shortage, volatile metal prices, mounting operating expenses and labor crisis.

Margin: Underlying earnings before interest and taxes (“EBIT”) were recorded at $9.2 billion in first-half fiscal 2015, down 25.5% year over year.

Balance Sheet: Cash and cash equivalents as on Dec 31, 2014 were recorded at $6.1 billion, down from $10.9 billion on Dec 31, 2013. Interest-bearing liabilities totaled $2.5 billion, down from $6.3 billion as on Dec 31, 2013.

Cash Flow: Net operating cash flow dropped 60% year over year to $10.4 billion in first half of fiscal 2015. Capital and exploration expenditure stood at $7.2 billion for the first half of fiscal 2015, compared with $9.1 billion in the year-ago comparable period.

In the reported period, the company paid dividends totaling $3.2 billion, same as the amount paid in the half year ended 2013. BHP Billiton also approved an interim dividend of 62 cents a share, payable to shareholders on Mar 31, 2015. The dividend represents an increase of 5%.

Outlook: BHP Billiton expects that economic growth in developed countries such as United States and United Kingdom would support its trade in the upcoming quarters. However, the same might also be adversely affected by persistent sluggish economic conditions in countries like China, Brazil and Russia.

BHP Billiton had announced to float a new company named South 32, through a proposed demerger in Dec 2014. Completion of the demerger would help augment the company’s shareholders’ value in the near future.

By lowering the exploration and capital expenditure by 23% in the first half of fiscal 2015, BHP Billiton anticipates to incur expenses worth $12.6 billion in 2015 and $10.8 billion in 2016. 

At the end of second half of fiscal 2015, the company aims to achieve 16% cumulative production growth over the last two years. Certain external market headwinds are anticipated to adversely affect the company’s trade in the second half of the current fiscal year. However, backed by stronger productivity and benefits of the proposed demerger, the company is upholding a positive outlook for the second half of fiscal 2015.

Stocks to Consider

With a market capitalization of $131.83 billion, BHP Billiton currently carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the industry include Denison Mines Corp. (DNN), Dominion Diamond Corporation (DDC) and McEwen Mining Inc. (MUX). All the three stocks currently hold a Zacks Rank #2 (Buy).

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