BHP Billiton (BHP) Pins Performance to Emerging Economies

Australian metals company BHP Billiton reported strong earning results today but tempered its outlook with measured optimism toward worldwide economic demand and growth.

The world’s biggest mining company expects softening output from industrialized companies in the months ahead and is looking to emerging economies for maintaining demand in the near term.

In its earnings release for fiscal year ending June 30, 2010, BHP reported a 5.2 percent increase in revenue and a 116 percent in profit over fiscal year 2009. Excluding exceptional items, the company grew EBITDA earnings 10 percent and profit 16 percent.

The biggest impact to the earnings results were a positive boost from strong volumes in steel-making raw materials, price increases for iron ore plus base and precious metals, and a negative exchange rate impact from a weaker US dollar.

The company boosted its dividend by $0.04 to $0.45 per share for the current quarter for an annual dividend of $0.87, yielding about 1.3 percent. Last year the company paid a annual dividend of $0.81.

The company noted its concerns in the earnings release:

BHP Billiton remains cautious on the short term outlook for the global economy… property sales volumes and prices have started to decline in Tier 1 cities over the last quarter… Uncertainty continues to surround the developed world as governments adjust fiscal policies following a period of significant stimulus and subsequent increase in sovereign debt levels… Industrial output, a core measure of economic activity, remains well below previous peaks despite the positive impact attributable to re-stocking that now appears largely complete… ongoing de-leveraging and weak confidence are hampering efforts to revive demand.

The stock sold off on the news.

BHP Billiton Ltd (NYSE: BHP)

Comments: As a supplier of basic raw materials as well as diamonds, precious metals, and oil, BHP could function as a bellwether for the global economy, reflecting future industrial output downstream. BHP clearly expects sales to weaken in the coming months and with demand slowing, the company is not likely to increase prices. Emerging economies may help in the interim, but until the global economy grows, the company is likely to report lower future earnings. It’s also worth noting that depreciation and amortization (non-cash items) added almost 2 percent to the reported 10 percent in earnings for the year. The company has a well-reasoned expectation for good performance over the long term. For now, the chart has yet to establish a bottom, and although oversold, the momentum is clearly to the downside.

Disclosure: No positions