Dividend haircut for FMG shareholders following -32pc earnings fall

Free falling iron ore prices in the second-half of 2022 has made a dent on Fortescue (ASX: FMG) earnings.

Net profits fell -32% to $3.88bn, slightly lower than Bloomberg estimates of $3.92bn and below Bell Potter estimates of $4.17bn.

Fortescue declared an interim dividend of 86 cents per share, down -41% compared to last year. The stock will go ex-dividend on Monday, 28 February. 

Profits hit from multiple angles 

Fortescue’s record shipments in the second-half of FY22 was offset by a -16% reduction in realised iron ore price to US$96 per dry metric tonne (dmt). 

By comparison, the Platts 62% CFR index averaged US$136/dmt compared to US$126/dmt a year ago. 

This flags a much more significant discount being applied to Fortescue’s lower grade iron ore. 

An elevated cost environment dented margins, now 59% compared to 71% a year ago.

C1 costs rose 20% to US$15.3 per wet metric tonne (wmt) as a result of “price escalation of key input costs, including diesel, other consumables and labour rates.”

FY22 guidance 

Fortescue reaffirmed its FY22 guidance including iron ore shipments between 180m to 185m tonnes and C1 costs of US$15.00 to US$15.50/wmt. 

The capital expenditure guidance of $US$3.0bn to US$3.4bn was higher than its August guidance of US$2.8bn to US$3.2bn.