Earnings results are a great way for investors to judge a company. They’re used to determine whether companies are on track with their initial guidance. These results can often radically move share prices in either direction, depending on the numbers reported. So, here’s an earnings preview for three FTSE firms reporting results this week.

The usual approach is to compare firms’ new numbers to those from prior years. But certain revenue figures may have been impacted by the pandemic, so it’s important to get context from pre-pandemic levels too. It can also be useful to consider whether a company can perform better than its previous year’s numbers, or if it can beat analysts’ annual forecasts. Analysts in the UK don’t always publish earnings previews for quarterly or half-year periods, but given their popularity, the shares covered below are exceptions. All of them have financial years that end in December.

Rio Tinto (H1 Earnings)

Rio Tinto (LSE: RIO) is an Anglo-Australian multinational company. It’s the world’s second-largest metals and mining corporation. The FTSE 100 firm’s main export is iron ore. Rio is set to reveal its H1 numbers for its six months performance ending June on 27 July.

Its earnings preview seems to indicate a slowdown in both its top and bottom lines. This is most likely due to the perpetual lockdowns in China that have been limiting construction activity. China is the group’s biggest customer, hence the gloomy forecasts. That being said, a sudden change in health policy in China could see Rio edge closer to its FY21 figures and could spell a healthy jump in its stock.

Barclays (Q2 Trading Update)

Barclays (LSE: BARC) is one of the UK’s biggest banks. It operates in many countries across the globe, and also operates an investment banking division. The bank is expected to disclose its Q2 figures for its three-month performance ending June on 28 July.

Analysts covering Barclays are expecting the bank to improve on its total income marginally this half, on a year-on-year basis. However, its most recent earnings per share estimate has been downgraded from 7.6p in the last week. The increase to its top line is most likely due to the effects of higher interest rates. Nonetheless, a decrease in investment banking activity from the current bear market is going to cause its bottom line to suffer. But if the dual-listed stock surprises investors with better than expected figures, a rally could be a possibility.

NatWest (H1 Earnings)

NatWest (LSE: NWG) is another UK bank reporting results this week. The group operates a wide variety of banking brands, offering personal and business banking, private banking, insurance, and corporate finance. It’s scheduled to unveil its H1 earnings for its six months performance ending June on 29 July.

Just as is the case with its sector peer, analysts are expecting the same trend. Alongside that, investors in its shares and the wider stock market will be paying attention to its remediation figure and number of late-stage loans to determine whether the UK is heading for a recession. The former is essentially the amount of money allocated as a buffer to cover potential defaults from customers.

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John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

General Mills

While the S&P 500 flirts with bear market territory, consumer foods company General Mills (NYSE: GIS) continues to hit all-time highs. On a year-to-date (YTD) basis, the stock is up 11%! Not only that, the board recently approved a 6% increase to its quarterly dividend, bringing its total dividend to $0.54 per share. Nevertheless, what makes it such a lucrative stock is its track record of consistent and growing dividends, which has lasted over 120 years!

Aside from its dividend, however, the company continues to post steady and healthy margins (14.3%), despite ongoing inflationary pressures. General Mills’ top line shows no signs of cooling either when taking June’s Consumer Price Index report into account. Although cereal prices are up 2.5% on average, May’s retail sales data indicates that grocery sales are up 1.2% month-on-month (M/M). This aligns with what CEO Jeffrey Harmening mentioned, that General Mills is benefiting from consumers switching to at-home eating.

Rio Tinto

Another Dividend Aristocrat on my list is Rio Tinto (LSE: RIO). Like General Mills, Rio has been paying consistent dividends for the past few decades, even during the last three financial crises. Nonetheless, its share price is down 3% (YTD).

As the second biggest iron ore producer in the world, Rio exports the bulk of its iron to China. Therefore, lockdowns across China have resulted in a 15% decline in its share price over the last month. Consequently, I’m expecting Rio’s dividend to fall in the near term. But if history is any indicator, a post-Covid rebound in China’s economy will most likely boost Rio’s top line and dividend exponentially. I only need to refer to the difference in dividends from 2020 and 2022 (‘Peak-Covid’ vs ‘Post-Covid’) to make my case.

Additionally, the miner boasts excellent profit margins that average above 20%. With a healthy debt-to-equity ratio of 21.7%, and cash ($15.3bn) comfortably covering debt ($12.2bn), the FTSE 100 firm seems well equipped to handle a potential economic slowdown.

Worthy dividend?

Having said all that, these two dividend stocks have good track records. It suggests that they are able to provide some passive income through good and bad times. As a matter of fact, their average dividend yields outperform the S&P 500. But do I think these stocks are worth a buy?

Well, General Mills’ financials put me off investing in its shares. The manufacturer has a staggering amount of debt ($11.6bn) with a minuscule amount of cash ($819m) in its reserves. With interest rates set to continue rising, debt repayments could become more costly, and potentially lower its dividend. Furthermore, its average price target of $73.87 could indicate that the stock is overvalued at this time.

On the other hand, Rio Tinto has strong financials and earnings power. As a result, the current dip is a buying opportunity for me, as I aim to capitalise on an eventual rebound in the Chinese economy. After all, its average price target is £56.43. This presents me with a 24% upside if I were to invest today.

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• The only FTSE 100 stock I own right now

John Choong has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

However, given the recent ‘coming to earth’ commodity prices have seen, questions remain about where Rio Tinto shares could be headed next. Given this is a stock I’m considering for my portfolio, I’ve been taking a hard look at this miner.

Just look at that dividend…

Among a list of the top FTSE 100 stocks, Rio Tinto shares take third place in terms of current dividend yield. The company’s 9.2% dividend yield is staggering. Indeed, surging iron ore and copper prices have produced incredible profits for this mining juggernaut. Accordingly, Rio Tinto’s management team hasn’t been shy about dishing out these profits to shareholders in the form of dividends.

Now, it’s worth nothing that a significant chunk of Rio Tinto’s dividend yield is a result of a special dividend. The company’s special half-year dividend will cost Rio Tinto around US$3bn. These special dividends are sure nice for investors. However, many investors (myself included) subtract these special dividends from their calculations. This is because such dividends are paid out sporadically, based on performance. Accordingly, there is significant risk in assuming Rio Tinto shares will pay out a 9.2% dividend yield over the long term.

Booming earnings lift Rio Tinto shares 

The key driver of Rio Tinto’s recent massive dividend payouts is the company’s stellar earnings. Over the past two quarters, the company grew its net earnings by more than 270%. As an investor looking for some mining exposure, these kind of explosive earnings are appealing to me.

Rio Tinto’s diversified business model is something I like. When looking across the mining sector, it’s difficult to find a comparable to Rio Tinto. Indeed, as far as size and quality go, Rio Tinto shares are among the best I can find in this sector.

That said, should commodity prices continue leveling out, I remain cautious with respect to future earnings growth from here. Thus, in my financial model, I’m assuming as a base case that things will continue as they are. 

The bottom line

Rio Tinto shares are currently valued at around 6.4 times trailing 12 month earnings. For a fundamental investor such as myself, that’s intriguing. Accordingly, this is as stock that tops my watch list right now in the commodity sector.

However, I’m also a realist. The rising commodity prices we’ve seen during the first half of this year are likely unsustainable. Rising coronavirus cases resulting from the delta variant pose a real threat to commodity price strength. Accordingly, I’m factoring in a significant buffer with this stock.

That said, I view Rio Tinto shares as a solid hedge against inflationary pressures (in a bullish economic environment). Should the economy slow, I think Rio Tinto’s diversified business model provides a significant margin of safety. Accordingly, this is a stock I’m considering for my portfolio right now.

The post Where does the Rio Tinto share price go from here? appeared first on The Twelfth Magpie.

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• The only FTSE 100 stock I own right now

Chris MacDonald has no position in any shares mentioned in this article. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Diversified digger Rio Tinto (LSE: RIO) has gained more than 4% from Tuesday’s close, to reclaim the 2,000p marker. And many resources-related shares have unsurprisingly been caught in the updraft, too — industrial belt-maker Fenner (LSE: FENR) was recently up 5% on the day.

China bites back?

Official data released overnight showed Chinese exports surge 11.5% year-on-year in US dollar terms during March, the biggest leap for more than 12 months.

But stock pickers should not be breaking out the bunting just yet, in my opinion. Whilst the increase in exports is encouraging, I believe a sustained recovery in economic data is needed before market commentators call a bottom to the downturn — Chinese exports slumped by a quarter in February, after all.

Besides, China’s imports declined yet again last month, this time by a chunky 7.6%. Sure, Rio Tinto and its industry rivals would have no doubt welcomed copper purchases hitting a record 570,000 purchases in March. Still, this is likely the result of tactical stockpiling rather than a sign of robust underlying demand.

And of course the mining and energy sectors need a sustained improvement in Chinese commodities demand to be complemented by huge cuts to total global production in order to slash chronic supply imbalances across most markets.

Battered belt-maker

Consequently, Fenner and other support providers to the diggers and the drillers are also not out of the woods just yet. The belt-maker advised last month that its “end markets continue to be challenging, most notably oil and gas where the North American rig count has reduced further.”

And the company faces further pressure as US coal mining activity is also on the back foot. Sure, Chinese coal demand may have galloped 15.6% higher in March. But news today that North America’s Peabody Energy has filed for bankruptcy underlines the massive upheaval facing the bulk commodities sector, and consequently the demand outlook for Fenner’s industrial parts.

Driller dives

Oil and gas play HydroDec Group (LSE: HYR) has failed to be swept up in the midweek buying spree washing over the commodities sector, the stock last changing hands 11% lower from Tuesday’s close.

HydroDec has suffered a delayed drop as investors digested yesterday’s news that losses had widened to $31.1m in 2015 from $8.9m the previous year. As well as battling falling revenues, the business was whacked by an $11.1m impairment on the value of its assets.

With cash heading out of the business at an alarming rate, HydroDec also announced plans “to extend its £2m secured second working capital facility with Andrew Black, a non-executive director … by a further £2.25m to £4.25m.”

Like Rio Tinto and Fenner, HydroDec is expected to endure further earnings misery in the medium term as commodity prices drag. As a result I believe the oil play — like many of its small cap peers — could find itself in extreme peril should commodity prices fail to snap resoundingly higher.

The post Why Savvy Investors Are Selling Rio Tinto plc, Hydrodec Group plc & Fenner plc appeared first on The Twelfth Magpie.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Rio Tinto. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Dig elsewhere

Diversified mining colossus Rio Tinto (LSE: RIO) has already fired a warning shot for those seeking chunky dividends in 2016 and beyond.

The London-based business announced in February that the commodities sector’s murky outlook will put paid to the steady payout increases of previous years. Indeed, Rio Tinto noted that “maintaining the current progressive dividend policy would constrain the business and act against shareholders’ long-term interests“.

Rio Tinto said that it expects to pay a dividend of at least 110 US cents per share in 2016 as a result, down markedly from the 215-cent reward of last year. In line with this statement, City brokers expect the mining giant to fork out a dividend of 127 cents this year, a figure that yields a splendid 4.6%. However, I believe that these forecasts are built on shaky ground.

First of all, Rio Tinto is expected to nurse a third successive earnings dip in this year, a 49% reduction resulting in earnings of 127 cents per share is forecast, matching the predicted payout. Obviously this leaves little margin for error should commodity prices fail to recover — indeed, copper and oil values have resumed their downtrend in recent days as supply/demand fears have reared their head again.

And Rio Tinto cannot rely on a robust balance sheet to relieve its murky earnings outlook, either. The company saw net debt rise to $13.8bn as of December, up 10% from the same point in 2014.

With Chinese metal imports likely to keep falling amid painful economic rebalancing, and producers of key commodities continuing to swamp the market with unwanted material, I reckon dividends at Rio Tinto could keep on falling well beyond this year.

Don’t get burned

Like Rio Tinto, energy giant Centrica (LSE: PLC) also remains at the mercy of worsening commodity markets — the firm’s Centrica Energy arm saw operating profit slump by almost two-thirds in 2015 as revenues lagged. And the company is also being put on the back foot by the rise of cheaper, independent suppliers across its retail operations.

Centrica was forced to slash tariffs at its British Gas division twice in 2015 in order to maintain market share, and was forced to cut gas prices again — this time by 5.1% — in February. And the company should be braced to make further reductions as UK consumers become increasingly receptive to switching suppliers.

These pressures have already forced Centrica to reduce the dividend in each of the last two years in line with falling earnings. But although a further reduction is anticipated in 2016 — this time by a hefty 12% — the City expects Centrica to lift the dividend to 12.2p per share from 12p last year.

Still, investors should not be drawn in by the monster 5.6% yield, in my opinion. Not only is the predicted payment covered just 1.2 times by prospective earnings, but news that Moody’s is considering downgrading Centrica’s credit rating underlines the firm’s poor financial health.

Until revenues pressures begin to ease, I believe that dividends could continue to recede at Centrica in the near-term and beyond.

The post Are Rio Tinto plc & Centrica PLC The FTSE 100’s Worst ‘Big Yielders’? appeared first on The Twelfth Magpie.

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• The only FTSE 100 stock I own right now

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Centrica and Rio Tinto. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.