Falling commodity prices and weak global economic trends have created a very challenging environment for commodity producers. Many metals and mining stocks have been punished by investors in recent months in view of the weak outlook.
About the Company
Rio Tinto (RIO - Analyst Report) is a global industrial metal & mineral mining conglomerate headquartered in London. They employ more than 60,000 people in more than 40 countries across six continents. They have strong presence in Australia and North America, and also have significant businesses in Asia, Europe, Africa and South America. They have five product groups – Aluminum, Copper, Diamonds & Minerals, and Energy and Iron Ore.
Disappointing Financial Results
On February 12, the company reported the financial results for 2014. Consolidated sales for the year were down to $47.7 billion from $51.2 billion a year ago. Weak pricing conditions in the market were mainly responsible for the decline in sales.
Underlying earnings came in at $9.3 billion or $5.03 per share down from $10.2 billion or $5.53 per share recorded a year-ago. Increased volumes and reduced costs partially offset the impact of lower commodity prices.
The company announced a 12% increase in full year dividend and $2.0 billion share buy-back with the results.
Commodity Price Slump Continues
While oil price plunge story continues to grab headlines, most other commodities have also gone through a lot of pain in the last few months and the price weakness is expected to continue through much of this year as well.
China is the largest consumer of commodities in the world and thus, slowing economic growth and cooling property market in the country does not bode well for commodities.
Downward Revisions
After poor results, analysts have revised their estimates for the company sharply downwards. Zacks Consensus Estimates for the current and the next fiscal year $3.12 per share and $3.20 per share, respectively, down from $3.41 per share and $4.83 per share 30 days ago.
The Bottom Line
While the company has taken a number of steps recently to cut costs and improve efficiency, rising supplies and weak demand for commodities will continue to weigh on the results in the near-term. Mining-Miscellaneous industry is currently ranked 158 out of 265 Zacks industries. It is safer to avoid investing in this space till the outlook improves.
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