Forecast setback for Glencore despite earnings jump

Commodities trader Glencore missed forecasts despite posting a 45 per cent jump in first-quarter earnings, after its key metals trading unit was hit by a drop in Japanese demand and lower volatility.
By The Newsroom
Published 15th Jun 2011, 07:00 BST

The world’s largest diversified commodities trader was reporting earnings for the first time since its record London and Hong Kong listing in May. “It was a strong quarter, but if you look at the consensus numbers (for 2011), they are going to have to have stronger quarters for the rest of the year to deliver on those estimates,” analyst Tim Dudley at Collins Stewart said.

“The forecasts in the market at the time of the IPO were quite aggressive and may now have to pull back slightly. The share price weakness reflects that.”

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Glencore’s adjusted earnings before interest and tax (EBIT) rose to $1.8bn (£1bn) in the first three months of the year. Deutsche Bank analysts had forecast an adjusted operating profit (EBIT) of $1.94bn, with a 45 per cent contribution from the metals and minerals division.

Net income, up 47 per cent, was also below most available analyst forecasts. Banks involved in Glencore’s float are still restricted on the stock and unable to comment publicly.

“The earnings were 6 per cent below our expectations and that was mainly driven by a slightly disappointing number in the marketing business,” Nomura analyst Paul Cliff said.

Operating profit for Glencore’s whole trading, or marketing, division rose 37 per cent, but most of that came from energy products, where profit more than doubled from a weak 2010, thanks to volatility which boosted arbitrage opportunities.

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“There was a lot of (arbitrage) opportunity in the first quarter,” chief executive Ivan Glasenberg said of the oil trading division. “It slowed down a little in the second quarter but it looks like it is coming back during the latter part of the quarter.”

Energy products represented a quarter of overall operating earnings in the three months, compared to a fifth last year.

Glencore’s metals and minerals unit, where comparisons were with a bumper first few months of 2010, was hit by the Japanese earthquake, which stopped imports, and a drop in volatility.

Metals and minings marketing operating profit was down 20 per cent to $263m, a level Glencore said would be sustainable through the year.