Freeport-McMoRan (FCX) Up 6.78% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Freeport-McMoRan Inc. FCX. Shares have added about 6.8% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is FCX due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Freeport Q1 Earnings Miss, Revenues Top Estimates

Freeport reported net income (attributable to common stock) of 47 cents per share for first-quarter 2018 compared with 16 cents recorded a year ago.

Barring one-time items, adjusted earnings came in at 46 cents a share in the quarter, missing the Zacks Consensus Estimate of 58 cents.

Revenues went up around 45.7% year over year to $4,868 million. Also, the figure surpassed the Zacks Consensus Estimate of $4,759.9 million.

Consolidated sales from mines totaled 993 million pounds of copper, 610,000 ounces of gold and 24 million pounds of molybdenum in the first quarter. Copper sales volume rose 22.7% year over year, mainly reflecting higher operating rates in Indonesia.

According to the company, first-quarter results highlight strong cash flows, advancement of initiatives to create shareholders value and continued strengthening of its financial position.

Operational Update

Consolidated average unit net cash costs of 98 cents per pound of copper were lower than $1.39 reported in the year-ago quarter, mainly highlighting higher by-product credits and sales volumes.

Average realized price for copper was $3.11 per pound, up from $2.67 a year ago. Average realized price per ounce for gold rose to $1,312 from $1,229 a year ago, while average realized price per pound for molybdenum was $11.95 per pound.

Mining Update

North America Copper Mines: Copper sales increased 2.4% year over year to 384 million pounds, mainly reflecting timing of shipments. Production fell 11.2% to 348 million pounds.

Freeport expects copper sales from North America to be 1.5 billion pounds in 2018.

South America Mining: Copper sales of 290 million pounds decreased 6.1% from the year-ago quarter.

Freeport expects South America mining to report sales of around 1.2 billion pounds of copper in 2018.

Indonesia Mining: Copper sales of 319 million pounds significantly rose from 125 million pounds in the year-ago quarter.  

Gold sales increased to 603,000 ounces from 177,000 ounces a year ago while production rose nearly three-folds to 595,000 ounces in the first quarter.

Per Freeport, sales from Indonesia mining are anticipated to be about 1.15 billion pounds of copper and 2.4 million ounces of gold for 2018 compared with 1 billion pounds of copper and 1.5 million ounces of gold for 2017.

Molybdenum Mines: Molybdenum production was 9 million pounds in first-quarter 2018 compared with 8 million pounds in the year-ago quarter.

Financial Position

Freeport’s operating cash flows totaled roughly $1.4 billion in the quarter, which include $21 million in working capital and changes in other tax payments.

The company had total debt of $11,606 million as of Mar 31, 2018, down from $15,363 million as of Mar 31, 2017.

Guidance

Freeport anticipates consolidated sales volumes for 2018 to be roughly 3.8 billion pounds of copper, 2.4 million ounces of gold and 95 million pounds of molybdenum, including 970 million pounds of copper, 700,000 ounces of gold and 24 million pounds of molybdenum for second-quarter 2018.

For 2018, the company expects operating cash flows to be roughly $5.6 billion (including $0.2 billion in working capital and other tax payments). Capital expenditures are expected to be around $2 billion, which includes $1.1 billion for major mining projects mainly related to underground development in the Grasberg and the Lone Star oxide project.

Freeport had no borrowings, $13 million in letter of credit issued and $3.5 billion available under its revolving credit facility as of Mar 31, 2018.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions higher for the current quarter compared to three lower.

Freeport-McMoRan Inc. Price and Consensus

Freeport-McMoRan Inc. Price and Consensus | Freeport-McMoRan Inc. Quote

VGM Scores

At this time, FCX has a strong Growth Score of A, though it is lagging a lot on the momentum front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, FCX has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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