Brazil's Vale misses second-quarter earnings forecast, core earnings jump

RIO DE JANEIRO (Reuters) - Brazil’s Vale SA, the world’s largest iron ore producer, posted a weaker-than-expected rise in quarterly net income on Wednesday as the company took a big currency hit, though core earnings jumped, helped by higher production.

The miner said profit in the second quarter rose to $76 million from $16 million in the same period a year earlier. The figure fell far short of a Reuters consensus estimate of $1.265 billion and the $1.590 billion in profit notched in the first three months of 2018.

Adjusted earnings before interest, taxes, depreciation and amortization, a good indicator of operating profit, surged 43 percent to $3.9 billion, matching analysts’ estimates.

Results were helped by iron ore and pellet production that reached a record for an April-to-June period, using a vast rail network to get around the effects of a trucker strike that rattled the country’s economy in May.

In a client note, BTG Pactual described the results as “high quality” despite the strike and declining iron ore prices. “With impressive capital allocation, and the company with a clear game plan for the next years - diversify within its asset base – we believe the equity story has materially de-risked,” it said.

Vale said a 16 percent depreciation in the real currency hit net profit to the tune of 7.3 billion reais ($1.98 billion).

Nevertheless, the miner had good news for shareholders, promising to buy back $1 billion worth in common stock and pay out a dividend of $2.054 billion in September, the highest such payment in four years.

Vale cut debt to $11.5 billion, a seven-year low, but failed to meet a goal of $10 billion by mid-year set by Chief Executive Officer Fabio Schvartsman. Free cash flow reached $3.1 billion in the quarter.

Vale trimmed capital expenditure to $705 million in the quarter, from $890 million in the first three months of the year and cut its annual capex guidance to $3.6 billion.

Net operating revenue rose 19 percent to $8.616 billion in the period, in line with analyst expectations for $8.622 billion.

Reporting by Alexandra Alper; editing by Diane Craft and Leslie Adler