Why is the Rio Tinto share price tumbling today?

Upset man in hard hat puts hand over face after Armada Metals share price sinks

Upset man in hard hat puts hand over face after Armada Metals share price sinks

The Rio Tinto Ltd (ASX: RIO) share price has come under pressure on Thursday.

In morning trade, the mining giant’s shares dropped 3% to $121.72.

Why is the Rio Tinto share price dropping?

The Rio Tinto share price is falling today following the release of the miner’s full-year results, which fell a touch short of the market’s expectations.

In case you missed it, Rio Tinto posted a 13% decline in revenue to US$55,554 million and a 39% reduction in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to US$26,272 million.

The latter is 1.6% short of the consensus estimate of US$26.7 billion.

Management advised that its top line was impacted by weaker commodity prices, whereas its bottom line was hit by higher energy and raw materials prices on its operations, as well as higher rates of inflation on operating costs and closure liabilities.

This ultimately led to Rio Tinto’s board cutting its fully franked final dividend by 46% to US$2.25 per share, which brought the Rio Tinto dividend to a total of US$4.92 per share in FY 2022. This is a 38% reduction on last year’s payout but was in line with consensus estimates.

Broker reaction

Goldman Sachs was pleased with the result. It notes that its earnings were largely in line with its estimates and its dividend was better than expected. It commented:

RIO reported an in-line 2022 result with underlying EBITDA/NPAT of US$26.3bn/US$13.3bn, -2%/+3% vs. our estimates and slightly below Visible Alpha consensus. Net debt of US$4.2bn was broadly in-line with GSe at US$4bn. Iron ore EBITDA was in-line with GSe, minerals performed strongly, but the aluminium division was below GSe on higher than expected costs (particularly in alumina). The final dividend of US$2.25/sh was above our US$1.97 estimate and cons. The full year div payout of 60% was at the top of the 40-60% policy with RIO stating capital allocation will now focus more on growth and decarb.

In response, the broker has retained its buy rating with a slightly trimmed price target of $131.70.

Elsewhere, over at Morgans, its analysts are little less positive. They note that Rio Tinto’s “H2 earnings slightly trailed expectations” and have retained their hold rating with a reduced price target of $109.00.

While its analysts see positives from its improved operating performance, they have concerns over costs. The broker commented:

In general terms it was a tough half for RIO with the big miner poorly positioned to defend against a difficult operating and cost environment given the ongoing productivity issues across its global business. With that said, greenshoots around an improving operating performance could be emerging in the Pilbara (WA iron ore), where it appears in early 2023 RIO has maintained the strong run rate it finished with in 2022. This builds on management’s assessment that each of its Pilbara assets finished 2022 in better shape than they entered the year, although management did caution against forming positive conclusions so early in the year.

The post Why is the Rio Tinto share price tumbling today? appeared first on The Motley Fool Australia.

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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 no position in any of the stocks mentioned. 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.

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