BHP’s profit expected to drop 26%

The extent of the mining sector’s fall is set to be highlighted when heavyweights BHP Billiton (ASX: BHP) and Rio Tinto (ASX: RIO) release their respective financial reports this month. It is expected that both companies’ profits will be significantly lower than those recognised in previous corresponding periods.

When BHP’s full year profit report is released on August 20, it is expected that the company’s profits will have fallen by up to 26%, with the market anticipating the recognised profit to be just US$12.5 billion compared to last year’s US$17.1 billion.

Although the company ramped up its production of iron ore for the year, diminished global demand for the commodity – and thus, a lower selling price – will offset much of the gains made from increased supplies. Lower earnings from coal, aluminium, nickel and petroleum will further add to the pain.

However, despite the significantly lower profits, it is still anticipated that the company’s annual dividend will increase to around US$1.17 per share compared to last year’s US$1.12 per share, according to Citi. This is due to the company’s progressive dividend policy, whereby the company has introduced a heavy focus on shareholder returns and ensuring long-term sustainability.

The market also awaits an update from the company regarding its intentions for the Jansen potash project in Canada, which came under the spotlight last week.

Meanwhile, Rio’s interim report is due out this Thursday. Analysts are expecting the company’s earnings to be between US$4.23 billion and US$4.3 billion, as compared to the US$5.2 billion recognised in the previous corresponding period.

Foolish takeaway

The mining boom seems well and truly a thing of the past. Recognising this, both Rio and BHP have vowed to significantly reduce costs by divesting in non-core projects and reducing unnecessary capital spending.

Shares in both companies have fallen heavily over the last two years, however, neither register as bargains due to the volatility remaining in the sector. With commodity prices continuing to fall, investors would be wise to remain on the sidelines until either company can provide a clearer perspective on future prospects.

Interested in our #1 dividend-paying stock? Discover The Motley Fool’s favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of “The Motley Fool’s Top Dividend Stock for 2013-2014.”

More reading

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned in this article.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.