Profit at Brazil’s Vale hit its lowest level in more than two years in the second quarter as a weakening Brazilian currency and a slowing Chinese economy offset a recovery in shipments of iron ore.
Vale, the world’s largest iron ore producer, earned $2.66-billion (U.S.) in the quarter, down 58.7 per cent from $6.45-billion in the year-earlier period, according to a securities filing on Wednesday. Profit slumped 30.4 per cent from the first quarter.
The result came in below the average $2.998-billion estimate of 10 analysts in a Reuters poll. Profit fell to its lowest since the first quarter of 2010, when it hit $1.61-billion.
An 11-per-cent drop in the Brazilian real helped boost Vale’s debt-servicing costs and charges related to fluctuations in currency and derivatives prices, but failed to generate significant revenue gains or cost savings. A tumble in taxes helped limit the impact of such losses, the filing added.
An account measuring the impact of currency and monetary fluctuations on Vale’s balance sheet reached $1.693-billion, the highest level for the item since the third quarter of last year, reflecting a jump in the cost of interest-rate and currency derivatives contracts, the filing showed.
Revenue rose 7.2 per cent to $12.15-billion from the first quarter, when heavy rains dampened production and shipments. The result missed analysts’ estimates of $12.596-billion in sales.
Earnings before interest, tax, depreciation, amortization and other items, a measure of operational profitability known as adjusted EBITDA, came in at $5.119-billion, below an estimate of $6.265-billion in the poll.
Investors tend to follow Vale’s quarterly data more closely than year-on-year numbers because the former helps them visualize operational and sales performance trends.