Freeport-McMoRan 2Q profit dips on one-time costs

The Phoenix-based company, the world's largest publicly traded copper producer, also paid more for everything from energy to labor and supplies as it pushed to meet demand in a tight copper market.

Shares tumbled more than 6.5 percent, or $7.12, to $99.89 by midafternoon.

"We are seeing higher costs. You're going to hear that from every company in our industry and other industries," Richard Adkerson, president and chief executive officer, told analysts during a conference call. "The great thing about our assets is that we are situated so that we can absorb the impact of these costs."

Although the lagging U.S. economy has slowed the demand for copper, Adkerson said the market remains tight because of challenges the industry has in meeting production targets amid higher costs.

For the April-June period, Freeport-McMoRan reported net income after preferred dividends of $947 million, or $2.25 a share, which compared with $1.1 billion, or $2.62 a share, in the year-ago period.

Revenue totaled $5.4 billion, essentially unchanged from the second quarter of 2007.

Analysts surveyed by Thomson Financial had predicted, on average, earnings of $2.44 per share and revenue of $5.3 billion. These forecasts typically exclude one-time items.

Deutsche Bank North America analyst Jorge Beristain said the earnings were artificially depressed by non-cash charges related to the Phelps Dodge acquisition last year.

"It does look like they beat the headline number (earnings per share estimate) by about 10 percent after you make some non-cash and volume adjustments," he said.

"I would call the results in line," he said. "The disappointment in the quarter is unit cash costs continuing to trend higher.... The positive is that they beat on volumes, gold and moly (molybdenum)."

During the second quarter, Freeport-McMoRan reported consolidated sales of 942 million pounds of copper, 265,000 ounces of gold and 20 million pounds of molybdenum.

In the year-ago quarter, consolidated sales consisted of 1 billion pounds of copper, 913,000 ounces of gold and 15 million pounds of molybdenum.

"As expected, copper and gold sales volumes were lower than the year-ago quarter because of mine sequencing at the Grasberg mine," the company said.

Freeport-McMoRan is opening the Grasberg open pit mine in Papua, Indonesia, in phases, which means the company hits lower-quality ore in some areas. It expects to reach higher-quality grades of ore in the second half of the year.

The most-recent results reflected a $5 million positive adjustment to prior-period copper sales, a $12 million increase in production costs related to Freeport McMoran's acquisition of Phelps Dodge Corp. in March 2007 and net interest expense of $22 million.

The 2007 second-quarter results included a $188 million positive adjustment to prior period copper sales and a $269 million increase in production costs related to the Phelps Dodge deal.

In the first six months, Freeport-McMoRan reported net income after preferred dividends of $2.1 billion, or $4.89 a share, compared with $1.6 billion, or $4.80 a share, in the year-ago period. Revenue totaled $11.1 billion up from $7.7 billion.

The company has forecast consolidated sales of 4.1 billion pounds of copper, 1.4 million ounces of gold and 75 million pounds of molybdenum for the full year of 2008.

In a related development, Freeport-McMoRan's board of directors authorized an increase in the common stock dividend to an annual rate of $2 a share, up from $1.75 a share, and expanded the open market share purchase program to 30 million shares, up from 20 million shares.

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