By Chris Becker
Yesterday was the first day of the official earnings season, which disappointed mostly, and has continued with Rio Tinto (RIO) this afternoon, which reported 1st half net profit down 34% to $5.885 billion, but this was way above the expected $5.04 billion by analysts.
There’s lots of stuff coming off the Bloomberg news wires right now, here’s the quick picks:
- Rio expects to see signs of China improvement by end year
- Maintains capex plan
- Expects China GDP to be around 8% in 2012
- Challenging conditions in first half
- Strong margins are being generated as prices drop
- Interim dividend 34% higher than 2011
For me, the most interesting metric so far was cashflow from operations (which is the core metric you should really look at for profitability) down 39% on the same period last year. Looking more closely at what prices affected earnings the most and its clear that iron ore is the major culprit, with 62% fines down by 21%, as volumes increased some four percent.
The outlook remains ebulliently bullish; this combined with the “miss” on the upside will probably buoy the stock price going forward, although iron ore prices remain flat.
There’s a lot more to go over, and Macro Investor subscribers will find full valuations and analysis of this result and all others in the next edition in the “Stocktake” section.
Chris Becker is an investment strategist at Macro Investor, Australia’s leading independent investment newsletter covering stocks, trades, property and fixed interest. Each week Macro Investor publishes tables on the top ten most undervalued and overvalued stocks on the ASX. A free 21-day trial is available at the site.
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