What To Expect From Freeport’s Second-Quarter Results

Freeport-McMoRan (NYSE: FCX) will release its second quarter results and conduct a conference call with analysts on 25th July 2018. Consensus market estimates expect the company to post an EPS (Non-GAAP) of $0.52, in comparison to an EPS (Non-GAAP) of $0.17 reported in the same period last year. The significant boost in the company’s bottom line is expected to result from its comparatively lower debt levels, whereas higher copper and gold prices are expected to boost the company’s top line. The company is consequently expected to report a revenue of $4.98 billion in its second quarter, nearly 34% higher year-on-year (y-o-y).

Although the recent trade war has been negatively weighing on copper prices in the present-day, copper prices have increased by nearly 21% in the second quarter of 2018, compared to the same period last year. The red metal has been gaining strength since the beginning of 2017 on the backdrop of a strong demand environment while supply concerns loomed. The increased usage of electric vehicles requires a substantial amount of copper and as per research, analysts at  Wood Mackenzie estimates that the copper industry would require an additional of 4.5 million metric tons of copper per year over the next decade to meet the growing demand for the metal. Thus, such macroeconomic factors have supported the price of copper and have remained beneficial for prominent copper players such as Freeport. Additionally, precious metal gold, another driver for Freeport’s revenue, has gained approximately 4% y-o-y in the second quarter and is expected to support the company’s revenue growth during the period. Gold has been gaining strength due to the ongoing uncertainty with respect to the global trade war but has not been able to shine through completely as a consequence of a stronger dollar.

Freeport’s copper shipments, on the other hand, are expected to remain weak due to the prevailing uncertainty with respect to its operations in Grasberg. As a result of the same, the company reduced its copper sales guidance by almost 1 million pounds of copper in its first-quarter earnings release from its original full-year guidance of 3.9 billion pounds of copper.  Although the company has recently announced its divestiture agreement with the Indonesian government, the deal is most likely to be finalized by the end of the year and thus its operations will remain under constant scrutiny until a definitive agreement is signed. We expect to hear more details about the same in the company’s upcoming earnings call.

In addition, we expect the company’s bottom line to continue to benefit from its lower debt levels in the second quarter. During its first quarter, Freeport repaid $1.5 billion of its borrowings and an additional  $454 million of debt in April’18. This aligns with the company’s objective to strengthen its balance sheet and we expect to see additional repayment of debt in the current quarter.

Our key expectations from the company’s 2018 performance are highlighted in our interactive dashboard analysis. You can make changes to our assumptions to arrive at your own fair price estimate for the company.

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