July 27, 2011 / 9:49 PM / in 6 years

UPDATE 2-Cliffs Natural Resources Q2 profit below estimates

* Q2 EPS $2.92 vs $3.71 expected by Wall St

* Shares drop 6 pct (Adds analyst comment, company outlook, updates shares)

SAN FRANCISCO, July 27 (Reuters) - Mining company Cliffs Natural Resources Inc (CLF.N) posted a 56 percent increase in second-quarter profit that fell short of expectations as its expenses rose sharply, sending its stock down 6 percent.

Its costs of goods sold and operating expenses ballooned by 40 percent over a year before, while other operating costs more than doubled to $114 million -- including $18 million related to the Consolidated Thompson acquisition that closed in May.

Arun Viswanathan, analyst at Susquehanna International Group, said the higher costs in the quarter did not alter the general outlook for iron ore production and prices.

“There were high expectations going into their earnings, so the stock will likely trade down, though we would be buyers on any weakness,” Viswanathan said, noting any fall in the stock on Thursday could be exacerbated by a general market decline.

Shares of Cleveland-based Cliffs were down 5.7 percent at $88.25 in after-hours trading on Wednesday. The stock had gained 20 percent so far this year as of the close of trading.

Second-quarter net earnings were $408 million, or $2.92 per share, compared with $261 million, or $1.92 per share, in the same quarter last year. Analysts had been looking for earnings per share of $3.71, according to Thomson Reuters I/B/E/S.

But revenue rose 52 percent to $1.81 billion, as expected, and the company’s general market outlook appeared intact.

“As a result of the current economic environment, including continued growth in Chinese steel production and steady blast furnace utilization rates in Europe and North America, Cliffs expects demand for its products to remain steady through the remainder of 2011,” the company said in a statement.

In an interview last month, Chief Executive Joe Carrabba had said Cliffs would fall short of its production targets for steelmaking coal this year, but that orders for its main product, iron ore, were strong. [ID:nN1E75R183]

Having predicted 2011 iron ore sales of 29 million tons in North America last month, he unveiled a new reporting structure on Wednesday that breaks out U.S. and Eastern Canada iron ore. (Reporting by Braden Reddall in San Francisco and Steve James in New York; Editing by Gary Hill and Gunna Dickson)

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