Freeport-McMoRan Reports Earnings Beat And Remains Confident On The Future Sustainability Of Copper Prices

Freeport-McMoRan (NYSE: FCX) released its second-quarter results on July 25th and conducted a conference call with analysts the same day. The company’s results topped analysts estimates for both earnings and revenues. Freeport reported an EPS (Non-GAAP) of $0.58 per share in comparison to an EPS (Non-GAAP) of $0.17 reported a year ago. The revenue figure also displayed remarkable growth and was reported at $5.17 billion vis-à-vis revenue of $3.71 billion reported in Q2 ’17. The company’s significant improvement in results was largely driven by higher copper and gold sales volume coupled with higher realized copper prices.

Freeport reported a 16% year-over-year (y-o-y) improvement in its realized copper prices for its second quarter. Although copper prices have remained relatively weak in the recent weeks due to trade war tension between the U.S. and China, copper prices edged higher in the second quarter following its strong fundamentals. Increased copper usage with evolving demand for Electric Vehicles (EVs) along with global supply constraints has kept copper prices higher during the first half of 2018. Additionally, higher than expected copper shipments due to higher milling rates at its South American mines and higher ore grades at Indonesia enabled the company to report profound growth in its revenue. Higher grades at Indonesia also enabled the company to achieve a 56% growth rate in gold sales, which further aided the company’s top line.

Looking forward, the company might face negative price impact in the second half of the year due to weaker copper prices following June ’18. Despite the prevalent unfavorable market environment, the company remains positive with respect to the long-term performance of the red metal. The company maintained its full-year sales and operating guidance, however, lowered its cash flow expectations by about 23% to $4.3 billion, broadly due to lower copper price expectations. Freeport’s recent agreement with Inalum and Rio Tinto provides some directional sense with respect to its stability in Indonesia, however, uncertainty with respect to its regulatory environmental matters looms.

We have updated our base case estimate for the company’s 2018 performance largely reflecting the change in expectations with respect to copper prices. You can modify our assumptions to arrive at your own fair price estimate for the company by using our interactive dashboard: Freeport-McMoRan’s Q2 Results Suggest Slightly Lower Fair Price Estimate For The Company.

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