Don"t blame it on Rio
It"s been a volatile year for metal stocks, and Companhia Vale do Rio Doce, also known as CVRD, is no exception. Investors were optimistic in the first quarter as metal prices and demand stayed strong, became pessimistic in the second as pricing dropped and fears about global gluts mounted, and have since turned positive once again.
Throughout the market"s bouts of manic depression, CVRD has continued to do well; the second quarter was no exception. Net revenue (according to U.S. GAAP) climbed 83%, as the company shipped nearly 12% more tons of iron ore and pellets and saw prices for those rise by about 98% and 122%, respectively.
Margins improved again, and the company posted operating income growth of about 113%. Looking at cash flow, both operating and free cash flow roughly doubled in the quarter, despite robust ongoing spending on new mining and production projects.
In addition to a solid earnings report, the company got some relatively good news from the Brazilian government as well. Antitrust proceedings ended without CVRD being forced to give up any strategic assets. CVRD will be required to forgo purchase rights from the Casa de Pedra mine (owned by Companhia Siderurgica Nacional), but the company bought relatively little in the past, so the impact should be insignificant.
I found another detail in the company"s release worth pointing out. China is CVRD"s largest single foreign customer, but it still accounts for only about 12% of the company"s sales. And while China gets a tremendous amount of press for its impact on the metals markets, CVRD is actually more reliant upon Brazil (27% of sales) and Europe (31% of sales). I"m not suggesting China is unimportant – that would be absurd – but it"s not quite the be-all and end-all of metal consumption, either.
Throughout the market"s bouts of manic depression, CVRD has continued to do well; the second quarter was no exception. Net revenue (according to U.S. GAAP) climbed 83%, as the company shipped nearly 12% more tons of iron ore and pellets and saw prices for those rise by about 98% and 122%, respectively.
Margins improved again, and the company posted operating income growth of about 113%. Looking at cash flow, both operating and free cash flow roughly doubled in the quarter, despite robust ongoing spending on new mining and production projects.
In addition to a solid earnings report, the company got some relatively good news from the Brazilian government as well. Antitrust proceedings ended without CVRD being forced to give up any strategic assets. CVRD will be required to forgo purchase rights from the Casa de Pedra mine (owned by Companhia Siderurgica Nacional), but the company bought relatively little in the past, so the impact should be insignificant.
I found another detail in the company"s release worth pointing out. China is CVRD"s largest single foreign customer, but it still accounts for only about 12% of the company"s sales. And while China gets a tremendous amount of press for its impact on the metals markets, CVRD is actually more reliant upon Brazil (27% of sales) and Europe (31% of sales). I"m not suggesting China is unimportant – that would be absurd – but it"s not quite the be-all and end-all of metal consumption, either.