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Rio Tinto (RIO) 1H16 Earnings Hindered by Pricing Woes

Premium industrial metals & minerals company Rio Tinto plc RIO reported weak results for first-half 2016.

At the end of the first half of 2016, underlying earnings were $1.6 billion, down 47% year over year. The massive decline was attributable to continued weakness and fluctuations in commodity prices.   

Underlying earnings came in at 87 cents per American Depositary Receipt (ADR) compared with $1.59 in the prior-year comparable period.

Sales: Consolidated sales for the first half of 2016 was $15.5 billion, down $2.5 billion from the value recorded in the first half of 2015. The year-over-year decrease primarily stemmed from lower commodity prices.

Costs/Margins: Rio Tinto’s exploration and evaluation costs were $66 million as of Jun 30, 2016, down 5.7% year over year. Operating profit was $2.1 billion compared with $3.3 billion a year ago.

Balance Sheet/Cash Flow: At the end of the first six months of 2016, cash and cash equivalents were $8.3 billion as against $9.4 billion recorded at the end of 2015. Long-term borrowings and other financial liabilities were recorded at $20.8 billion compared with $21.1 billion in the first half of 2015.

Net cash from operating activities in the first half of 2016 was $3.2 billion compared with $4.4 billion in the preceding year. Capital expenditure decreased to $1.3 billion from $2.5 billion in the first half of 2015.

In the first half of 2016, Rio Tinto paid dividends worth $1.9 billion and lowered its net debt to $12.9 billion.

Outlook: Rio Tinto boasts a stable foundation of business as it owns the correct combination of Tier 1 assets and has a strong balance sheet. The company aims to make several growth driving investments and augment its shareholders’ returns by generating more cash from all feasible opportunities.

As of Aug 3, 2016, Rio Tinto closed the trading session at $33.02 per share. However, it remains to be seen how the stock performs after posting the lackluster results.

RIO TINTO-ADR Price, Consensus and EPS Surprise

RIO TINTO-ADR Price, Consensus and EPS Surprise | RIO TINTO-ADR Quote

Other Stocks to Consider

Rio Tinto currently sports a Zacks Rank #1 (Strong Buy). Other well-ranked stocks in the industry include BHP Billiton Limited BHP, Klondex Mines Ltd. KLDX and Impala Platinum Holdings Ltd. IMPUY. All the three companies presently hold a Zacks Rank #2 (Buy).

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