Freeport-McMoRan (NYSE: FCX), one of the largest producers of copper, is slated to report its Q3 2022 results on October 20, reporting on a quarter that saw some pressure in the commodities markets amid mounting economic headwinds. We estimate that Freeport revenue will come in at about $5.4 billion for the quarter, roughly in line with consensus estimates and down about 11% versus the last year. We project that earnings will stand at $0.35 per share, marginally ahead of consensus estimates of $0.34 per share. So what are some of the trends that are likely to drive Freeport results? See our interactive dashboard analysis on Freeport Earnings Preview for more details on how Freeport’s revenues and earnings are likely to trend for the quarter.
Freeport’s copper production has been trending higher recently. Over the first six months of 2022, copper output was up 14% versus last year, led by higher volumes from the Grasberg mine in Indonesia, and the company’s South American operations, and this momentum could continue over Q3 as well. However, the pricing environment is likely to be more challenging. With inflation surging, the U.S. Federal Reserve and other central banks have been hiking interest rates at a more aggressive pace. Copper prices have been on the decline, falling from about $4.40 per lb in September 2021 to about $3.50 per lb as of September 2022. The three-month forward copper price at the end of June stood at $3.75 per pound, compared to the average $4.18 per pound the company realized over the first six months of the year. This indicates that price realizations are likely to be weaker over Q3.
Gold, which accounts for about 10% of Freeport’s revenue, has also seen headwinds, due to a strong U.S. dollar and rising bond yields. It’s very likely that the company’s gold price realizations will fall from the average of $1,861 per ounce realized over the first six months of the year. However, Freeport’s production has been on the upswing, rising 48% year-over-year over the first six months of the year, reflecting higher recoveries and milling rates.
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Despite the recent headwinds, Freeport stock may be worth a look for longer-term investors. Although the near-term outlook for copper is quite bearish, there are multiple long-term drivers of copper demand, including rising demand from the renewable energy sector and the electric vehicles market and this should benefit Freeport. The company also has a relatively strong balance sheet (net debt of just about $1.6 billion) which could make it more resilient to an economic downturn. Freeport stock also remains down by about 30% year-to-date and by about 45% from its recent highs. We have a $41 price estimate for Freeport which is about 42% ahead of the current market price. See our analysis of Freeport Valuation for more details on what is driving our price estimate for Freeport.
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