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Freeport-McMoRan (FCX) Down 11.2% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research
Alexion Pharmaceuticals (ALXN) seems well-positioned for future earnings growth and it is seeing rising earnings estimates as well, coupled with a solid Zacks Rank.

A month has gone by since the last earnings report for Freeport-McMoRan (FCX). Shares have lost about 11.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Freeport-McMoRan due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Freeport Surpasses Q2 Earnings, Sales Estimates

Freeport reported net income (attributable to common stock) of 59 cents per share in second-quarter 2018, up from 18 cents in the year-ago quarter.

Barring one-time items, adjusted earnings came in at 58 cents a share in the quarter, topping the Zacks Consensus Estimate of 54 cents.

Revenues went up around 39.3% year over year to $5,168 million. Also, the figure surpassed the Zacks Consensus Estimate of $4,821.2 million.

Consolidated sales from mines totaled 989 million pounds of copper, 676,000 ounces of gold and 24 million pounds of molybdenum. Copper sales volume rose 5% year over year, mainly reflecting higher ore grades and higher operating rates in Indonesia.

Per the company, second-quarter results reflected its continued focus on productivity, capital discipline and cost management along with strong performance from global operations.

Operational Update

Consolidated average unit net cash costs of 96 cents per pound of copper were lower than $1.19 reported in the year-ago quarter, mainly highlighting higher by-product credits.

Average realized price for copper was $3.08 per pound, up from $2.65 in the prior-year quarter. Average realized price per ounce for gold rose to $1,274 from $1,243 in the year-ago quarter, while average realized price per pound for molybdenum was $12.89 per pound.

Mining Update

North America Copper Mines: Copper sales fell 11.5% year over year to 361 million pounds, mainly reflecting timing of shipments and expected lower ore grades. Production fell 7.8% to 354 million pounds.

Freeport expects copper sales from North America to be 1.45 billion pounds in 2018 compared with 1.5 billion pounds a year ago.

South America Mining: Copper sales of 312 million pounds increased 8.7% from the year-ago quarter.

Freeport expects South America mining to report sales of around 1.2 billion pounds of copper in 2018.

Indonesia Mining: Copper sales of 316 million pounds significantly rose from 247 million pounds in the year-ago quarter.  

Gold sales increased to 671,000 ounces from 427,000 ounces in the year-ago quarter, while production rose more than two-folds to 740,000 ounces in the second quarter.

Sales from Indonesia mining are anticipated to be about 1.15 billion pounds of copper and 2.4 million ounces of gold for 2018 compared with 1 billion pounds of copper and 1.5 million ounces of gold for 2017.

Molybdenum Mines: Molybdenum production was 9 million pounds in second-quarter 2018 compared with 8 million pounds in the year-ago quarter.

Financial Position

Freeport’s operating cash flows totaled roughly $1.3 billion in the quarter, which include $0.2 billion in working capital and changes in other tax payments.

The company had total debt (including current) of $11,127 million as of Jun 30, 2018, down from $15,354 million as of Jun 30, 2017.

As of Jun 30, 2018, the company had no borrowings, $13 million in letters of credit issued and $3.5 billion available under its revolving credit facility.

Guidance

Freeport continues to anticipate consolidated sales volumes for 2018 to be roughly 3.8 billion pounds of copper, 2.4 million ounces of gold and 95 million pounds of molybdenum, including 970 million pounds of copper, 700,000 ounces of gold and 24 million pounds of molybdenum for third-quarter 2018.

For 2018, the company expects operating cash flows to be roughly $4.3 billion (including $0.2 billion in working capital and other tax payments). Capital expenditures are expected to be around $2 billion, which includes $1.1 billion for major mining projects mainly related to underground development in the Grasberg and the Lone Star oxide project.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -16.26% due to these changes.

VGM Scores

Currently, Freeport-McMoRan has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Freeport-McMoRan has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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