Rio Tinto share price on watch amid half-year earnings miss

Rio Tinto has handed down its half-year results. Has it delivered on expectations?

| More on:
A female miner wearing a high vis vest and hard hard smiles and holds a clipboard while inspecting a mine site with a colleague.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • Rio Tinto has released its half-year results after the market close
  • As expected, the mining giant has reported a sizeable decline in earnings
  • This has led to the Rio Tinto board slashing its interim dividend by a third

The Rio Tinto Ltd (ASX: RIO) share price will be one to watch closely on Thursday.

That's because the mining giant has just handed in its half-year results for the six months ended 30 June.

Rio Tinto share price on watch following half-year results

Here's how the miner performed during the half compared to the prior corresponding period:

  • Revenue down 10% to US$26.67 billion
  • Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) down 25% to US$11.73 billion
  • Underlying earnings of US$5.7 billion
  • Net profit after tax down 43% to US$5.1 billion
  • Fully franked interim dividend down 33% to US$1.77 per share
  • Net debt of US$4.35 billion

What happened during the first half?

For the six months, Rio Tinto reported a 10% decline in revenue to US$26.67 billion. This reflects weaker commodity prices which offset the miner's production growth.

Higher costs also weighed on the company's performance. This led to Rio Tinto's underlying EBITDA margin falling 8 percentage points to 42%, which drove a 25% reduction in underlying EBITDA to US$11.73 billion.

This comprises iron ore EBITDA of US$9.8 billion (down 6%), aluminium EBITDA of US$1.1 billion (down 60%), copper EBITDA of US$1.1 billion (down 29%), and Minerals EBITDA of US$0.7 billion (down 45%).

Rio Tinto reported US$0.8 billion (after tax) of impairments relating to its Australian alumina refineries. This was triggered by the challenging market conditions facing these assets, together with its improved understanding of the capital requirements for decarbonisation and the recently legislated cost escalation for carbon emissions.

This ultimately led to Rio Tinto reporting underlying earnings of US$5.7 billion and net profit after tax of US$5.1 billion. The latter represents a 43% decline on the prior corresponding period.

In light of this earnings decline, the Rio Tinto board has cut its interim dividend by 34% to US$1.77 per share. This represents a 50% payout ratio and total dividends of US$2.9 billion.

How does this compare to expectations?

The company's results have beaten expectations on some metrics and fallen short on others. This makes it difficult to predict how the Rio Tinto share price will perform tomorrow.

For example, a note out of Goldman Sachs reveals that its analysts were expecting "underlying earnings of US$5.6bn, down 35% YoY; underlying EBITDA of US$11.9bn (vs. Visible Alpha Consensus Data of US$12.4bn prior to the 2Q update), net debt of US$3.3bn, and DPS of US$1.73/sh."

As you can see, Rio Tinto has bested Goldman's underlying earnings and dividend estimates but missed on underlying EBITDA and net debt.

It is also worth noting that the consensus estimate for its interim dividend was higher than Goldman's forecast at US$1.85 per share. So, it has missed the market's dividend expectations.

Management commentary

Rio Tinto's chief executive, Jakob Stausholm, was pleased with the half and appears positive on the future. He said:

We have a clear pathway to building an even stronger Rio Tinto and continue to gain momentum in our strategy to set the business up for long-term success. We are making good progress on pursuing our four objectives as we build further momentum in our Pilbara iron ore business, mindful that we need to raise our game across many of our other operations.

Our disciplined investment in lifting the health of our assets and focus on culture, mindset and relationships is delivering results, with our Pilbara iron ore business consistently improving its performance with five consecutive quarters of year-on-year growth. We are taking real steps to shape our portfolio for the future, with first sustainable production from Oyu Tolgoi underground, just as we doubled our exposure through the acquisition of Turquoise Hill Resources.

Outlook

Pleasingly, the company's production and cost guidance for the remainder of FY 2023 remains unchanged since its last update.

This includes Pilbara iron ore shipments of 320Mt to 335Mt with unit cash costs of US$21 to US$22.5 per tonne, as well as mined copper production of 590kt to 640kt with unit costs of US$180 to US$200 per pound. Pleasingly, its half-year costs for both iron ore and copper were in line with the low end of these ranges.

The Rio Tinto share price is up 25% over the last 12 months.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Earnings Results

A man and woman sit next to each other looking at each other and feeling excited and surprised after reading good news about their shares on a laptop.
Earnings Results

Why this ASX 300 share is leaping 14% despite being branded a 'sell'

Falling profits are putting investors off the fund manager.

Read more »

A young male ASX investor raises his clenched fists in excitement because of rising ASX share prices today
Technology Shares

Life360 share price rockets 24% after smashing FY23 earnings expectations

This tech stock delivered a very strong result this morning. How strong was it?

Read more »

a man in a shirt and tie holds his chin in thoughtful contemplation and looks skywards as if thinking about something while a graphic of a road with many ups and downs unfurls behind him.
Earnings Results

What's with the Neuren Pharmaceuticals share price today?

The full market reaction to the Daybue developer's FY23 earnings report won't be seen until tomorrow.

Read more »

Two workers at an oil rig discuss operations.
Earnings Results

2 ASX energy shares going gangbusters on today's earnings results

The ASX energy shares are drawing investor interest today after releasing their half-year earnings results.

Read more »

Man pointing at a blue rising share price graph.
Earnings Results

This ASX 300 stock just jumped 12%! Here's why

The ASX 300 stock is impressing investors with its half-year earnings results.

Read more »

Shot of a scientist using a computer while conducting research in a laboratory.
Earnings Results

Mesoblast share price tumbles on US$32.5m half-year loss

This biotech continues to burn cash.

Read more »

Man and woman sitting at casino table playing poker
Earnings Results

Star Entertainment share price jumps 5% on strengthening outlook

ASX 200 investors are bidding up the Star Entertainment share price on Thursday.

Read more »

Happy couple doing online shopping.
Earnings Results

Harvey Norman share price jumps to 52-week high on half-year results

A sharp profit decline isn't putting off investors today.

Read more »