Rio shares drop as profit, dividend fall short of expectations
Shares in global miner Rio Tinto were down more than 3 per cent on the Australian market in early trade, mirroring a similar fall in London overnight, after missing analyst expectations for its first-half earnings and dividend.
The stock price fall also follows declines in iron ore and other base metal prices overnight amid concerns demand will be hit by renewed US-China trade tensions. The iron ore price fell 2.4 per cent.
Other major miners including BHP and Glencore also fell on the London market.
In Australia, Rio shares were down 3.1 per cent ($2.52) to $79.13 about 45 minutes into the session.
Rio Tinto's first-half result for 2018 included an underlying profit of $US4.416 billion, up 12 per cent but slightly below expectations. The miner reported consolidated sale revenue of $US19.9 billion, up $US600 million on the prior corresponding period. According to data compiled by Bloomberg, analysts had been expecting revenue for the half of $US21.46 billion.
Senior mining analyst Peter O'Connor, from Shaw and Partners, said in a note released on Wednesday night that Rio had recorded "a miss" on earnings and dividend.
"The result was solid uplift year-on-year although there were some softer areas half-on-half (iron ore). The dividend miss may ultimately be rendered moot by the $US1 billion buyback top-up and the indication that another $US4 billion (net of tax) proceeds to be returned as well following recent asset sales," he said.
Shaw and Partners has a buy rating on Rio, and a price target on its shares of $91, which is well above its current trading level.
Goldman Sachs analysts said iron ore and aluminium were "the key places where the miss occurred - most exposed to recent cost inflation".
During a lengthy media call to discuss Rio's results late on Wednesday, Rio chief executive Jean-Sebastien Jacques said the miner had reported "another strong set of results" but he highlighted potential macro challenges to the industry including rising inflation.
Mr Jacques said uncertainty as a result of international trade tensions was a concern, while emphasising Rio's support for free trade.
"We remain concerned about rising inflation, increased expectation of all stakeholders, and ongoing threats to global trade. In these uncertain times, resilience is key," he said.
Mr Jacques said Rio was taking steps to maintain resilience by shaping its portfolio appropriately, and keeping a strong balance sheet.
"Trade is the best way to create wealth for all parties. There are plenty of examples from that perspective. "You know what the concerns are in the marketplace. We really hope that people talk to each other, put the issues on the table and find common ground to take it forward."
Frances Hudson, an investment director at Aberdeen Standard, which holds Rio Tinto shares, said rising oil prices and mostly weakening metals prices meant the "profit picture is less favourable from both sides" for a miner like Rio. Rio's high exposure to iron ore was also unhelpful "in a context where Chinese growth is softening", she said.
A highlight of Rio's half-year results was its record interim dividend of $US1.27 a share, equating to total interim dividend payments of $US2.2 billion, although the $US1.27 dividend figure was below market expectations.
Trade is the best way to create wealth for all parties.
Jean-Sebastien Jacques, Rio Tinto CEO
The miner said its board had decided that $US4 billion of proceeds from asset sales would be distributed to shareholders. But the method by which this would be done was yet to be determined.
The company also announced an additional $US1 billion buyback of its London-listed stock.
Fellow miner BHP will release its full-year results for fiscal 2018 on August 21.
with wires