Rio Posts Weak 2014 Results, Falls Y/Y On Market Headwinds - Analyst Blog

Rio Tinto plc (RIO) reported weak financial results for 2014. Backed by lower costs and increased volumes, the company’s underlying earnings came in at $9.3 billion. However, the figure missed the year-ago tally of $10.2 billion by 9%.Underlying earnings per ADR came in at $5.03 against $5.53 a year ago.

Sales: Consolidated sales in 2014 moved down to $47.7 billion from $51.2 billion recorded a year ago. Unfavorable pricing conditions in the market were primary responsible for the year-over-year decline in the aggregate sales.  

Production Details: Rio Tinto’s global iron ore production volume in the quarter was 79.1 million tons, up 12% from the year-ago tally. The same for full year 2014 was 295.4 million tons, climbing 11% from year-end 2013. The significant year-over-year improvement was mainly driven by improved productivity in the company’s Pilbara operational facility.

Mined copper output level in the fourth quarter totaled 128.3 million tons, down 23% from the year-ago quarter. The decline in productivity was due to lower throughput and grade. However, the company produced 603.1 million tons of mined copper at the end of full-year 2014, 4% above the year-ago tally. The full year productivity increased on the back of higher mill throughput in some mines and enhanced ore stacked for leaching, notwithstanding lower grade.

Productivity volumes of titanium dioxide experienced the highest year-over-year decline at the end of 2014, slipping 11% from the year-ago value to 1443 million tons for the twelve months ended 2014. The decline was primarily resulted by shutdown of the company’s Argyle maintenance facility. Amid such adverse externalities, Rio Tinto is currently concentrating on lowering its operational costs and increasing shareholders’ value on operational excellence.  

Costs/Margins: Rio Tinto’s exploration and evaluation costs declined 21.2% year over year to $747 million in 2014. Operating profit stood at $11.3 billion compared with $7.4 billion accrued a year ago.

Balance Sheet/Cash Flow: Exiting 2014, cash and cash equivalents amounted to $12.4 billion, up from $10.2 billion at the end of 2013. Long-term borrowings and other financial liabilities were recorded at $22.5 billion, compared with $24.6 billion at 2013-end.

Net cash flow from operating activities in 2014 was $14.3 billion compared with $15.1 billion in the preceding year. Capital expenditure decreased to $8.2 billion in 2014 from $13.0 billion in 2013.

In 2014, Rio Tinto paid dividend of $2.15 per share, a 12% increase from $1.92 paid in 2013.

In 2015, the company expects $750 million of cash cost improvements, while its capital expenditure is projected at less than $7 billion.

Other Stocks to Consider

With a market capitalization of $87.21 billion, Rio Tinto carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the industry include Denison Mines Corp. (DNN), Dominion Diamond Corp. (DDC) and McEwen Mining Inc. (MUX). All the three stocks currently hold a Zacks Rank #2 (Buy).

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