What To Expect From Freeport-McMoRan’s Q1 2018 Results?

by Trefis Team
Freeport-McMoRan Inc.
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Freeport-McMoRan (NYSE: FCX) will release its first-quarter results and conduct a conference call with analysts on April 24. Consensus market estimates imply a significant earnings growth in comparison to the same period last year largely due to the company’s disrupted operations in Grasberg in Q1 ’17. Overall the company is expected to display a 10% sequential (Q-o-Q) growth in earnings with an expected adj-EPS of $0.56. Mean consensus revenue of $4.93 billion is expected to display a sequential decline of ~2%. The company is likely to benefit from higher gold sales volume and lower unit costs throughout the year.

Increased Gold Output To Contribute To Top-line With Copper Prices Remaining Stagnant

Copper prices displayed significant strength last year owing to several macroeconomic factors including China’s industrial output cut coupled with a global shift towards electrification. However, prices have remained weak this year and are expected to display minimal growth in comparison to last year. Additionally, the company’s 2018 production guidance directed towards an insubstantial copper output growth which would consequently result in stagnant copper revenue (most of the output growth in comparison to last year would be due to an increased stability in Grasberg).

In such a scenario, most of the company’s top-line growth is expected to be derived by Freeport’s gold segment. Freeport in its fourth-quarter results guided towards a 50% year-on-year (Y-o-Y) increase in gold sales volume to 2.4 million ounces in 2018. The increase in gold output is enabled by the company’s transition to Grasberg’s underground operations, providing the company with greater access to higher grade gold ores. This would remain favorable to Freeport given the additional strength gold prices have been gaining since the beginning of the year. Investment demand for gold has been increasing due to an increase in global uncertainty due to the ongoing trade tension between the U.S. & China and the more recent probable military strike against Syria by President Trump. This would continue to remain beneficial for Freeport throughout the year. Gold sales volume in Q1 is expected to be 675 thousand oz, 14% higher quarter-on-quarter (Q-o-Q).

Additional Details With Respect To Grasberg

The company in its Q4 results reiterated on having a signed agreement with the Indonesian government by H1 2018 which should put the pending matter to rest. Although a final framework of the agreement has already been agreed upon by both parties in September last year, certain matters including the valuation of the divestment stake are still undergoing several phases of negotiation. The new two-year labor contract signed in December with a new union leadership in Indonesia has provided the company with greater stability with respect to its operations in Indonesia. However, the market still awaits to hear additional details with respect to the closure of the deal to regain its confidence in the company.

EPS for full-year 2018 is expected to display significant growth this year with lower debt levels and the more recent redemption of Freeport and Freeport-McMoRan Oil & Gas LLC senior notes on 4th April.The aforementioned redemption is expected to result in $30 million interest cost savings per annum and hence provide significant support to the company’s earnings. Our key assumptions about the company’s 2018 performance are highlighted in our interactive dashboard. You can make changes to our assumptions to arrive at your own fair price estimate for the company.


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