What To Expect From Freeport-McMoRan’s Q3 Results?

by Trefis Team
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Freeport-McMoRan Inc.
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Freeport-McMoRan (NYSE: FCX) will release its third-quarter results and conduct a conference call with analysts on 24th October 2018. The market expects the company to report an EPS (Non-GAAP) of $0.33, in comparison to $0.34 posted a year ago. Higher gold prices are expected to boost the company’s top line, while lower interest expense (due to lower debt levels) will augment its bottom-line. We expect the company to post a revenue of $4.55 billion in this quarter, 5.5% higher compared to the figure reported a year ago.

We have a price estimate of $15 per share for the company, which is higher than the current market price. Our detailed analysis and shipments volume for each of the segments have been highlighted in our interactive dashboard –Freeport-McMoRan’s Outlook For 2018. You can modify our assumption to arrive at your own price estimate for the company.

Key Factors That Impacted FCX’s Stock Price in the Third Quarter

After touching a four-year high of $3.29 per pound in the second quarter, copper prices witnessed a sell-off at the beginning of August after the trade war broke out between the US and China. Consequently, copper prices hit a 13-month low of $2.64 per pound in the third quarter. While the copper prices have recovered a little to $2.82 per pound, the volatility persists and the red metal could slide further down in the near term in case the global markets experience a slowdown due to the trade wars. Freeport has pointed out a $0.10 per pound change in copper prices could impact its cash flows by $185 million in the second half. This implies that the company’s cash flows are highly sensitive to copper prices and could be negatively impacted if copper prices fall further.

Apart from this, Freeport’s copper shipments are expected to remain weak due to uncertainty around its operations in Grasberg. FCX has announced a divestiture agreement with the Indonesian government, which would require divesting its interest in Grasberg to 49% from a previous 90.64%. The Grasberg mine in Indonesia contains the largest single recoverable copper and gold reserve of any other mine in the world. The divestiture deal is most likely to be finalized by the end of the year and thus its operations will remain under scrutiny until a definitive agreement is signed. Accordingly, FCX expects 970 million pounds of copper shipments in third quarter and 3.8 billion pounds in FY’18.

On the other hand, gold, another driver for Freeport’s revenue, had gained 4% y-o-y in the second quarter and is expected to support the company’s revenue growth in this quarter. FCX’s gold operations are wholly concentrated in the Indonesian mines and have a significant potential to boost its gold output. The company expects 700 thousand ounces of gold shipments in the third quarter and 2.4 million ounces in FY’18.

 

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