Next Week: Be Prepared for Rio Tinto's Results

LONDON -- Mining giant Rio Tinto  (LSE: RIO  ) (NYSE: RIO  ) is due to announce its annual results on Thursday this coming week (14 February).

At the time of writing, the shares of this FTSE 100 heavyweight are trading at 3,645 pence -- down 7% from a year ago compared with a 7% rise in the Footsie.

How will Rio's business have performed in 2012 compared with last year? And will the results justify the weak performance of the shares? Here's your cut-out-and-check results table!

 

FY 2011

Forecast FY 2012

Forecast FY Growth

Revenue

$60.5bn

$52bn

(14%)

Underlying earnings per share (EPS)

$8.09

$5.02

(38%)

Dividend per share

$1.45

$1.60

+10.3%

Sales, earnings and dividend
The big miners of the FTSE 100 are all expected to show revenue and earnings declines for 2012 as a result of weak commodity prices and industrywide cost pressures. Rio is no exception.

Analysts are forecasting revenue of around $52 billion for the year, down 14% on 2011. Underlying earnings are expected to see an even bigger drop: EPS of $5 represents a near 40% fall. Such a drop would be a deterioration on the first-half performance, when Rio reported EPS of $2.78 -- 30% lower than the same period in 2011.

At the half-way stage Rio paid an interim dividend of $0.725 per share (up 34% on the previous interim), in line with its policy of setting the interim at half the previous year's total payout. The analyst consensus is for a total dividend of $1.60 per share for 2012, an increase of 10% on 2011.

However, it's worth noting that the $1.60 forecast implies a final dividend of $0.875, which would be lower than 2011's $0.91 final. I wouldn't be surprised to see Rio maintain the final at $0.91, making the full-year dividend for 2012 a few cents higher than the analyst consensus. Despite the big drop in forecast earnings, the dividend would still be well covered.

Costs and impairments
In the prevailing challenging economic conditions for the industry, companies have been trying to cut costs. In 2011, Rio's core operating costs were just over $36bn; during the first half of 2012, they were just under $18 billion. So, not a lot of headway there. Keep an eye on whether the company has managed to make inroads into core operating costs in the second half.

Rio took the market by surprise last month by announcing that it would recognise a non-cash impairment charge of $14 billion within the upcoming results. The impairments include $3 billion relating to the acquisition of Mozambique coal assets and a near-$11 billion reduction to the carrying value of the company's aluminum assets -- the latter comes on top of a $9 billion writedown from 2011.

As a result, Tom Albanese, Rio's chief executive, and Doug Ritchie, who led the acquisition and integration of the Mozambique coal assets, immediately stepped down "by mutual agreement" with board.

In addition to the coal and aluminum impairments, Rio has signaled that it expects to report a number of smaller asset writedowns of around $500 million.

It will be interesting to see whether new boss Sam Walsh does any further 'kitchen-sinking' that can be presented as a legacy of his predecessor. But as Walsh has barely had time to get his feet under the desk, I'm not expecting to hear too much from him in these results.

At 3,645 pence, Rio is on a 'value' P/E ratio of less than 10 for 2013. Having said that, the analyst consensus forecast does bake a 20%-plus rebound in earnings into the rating. Put another way, Rio -- and the global economy -- will have to go some for the company to beat expectations in the year ahead.

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