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Freeport (FCX) to Post Q1 Earnings: What’s in the Cards?

Zacks

Freeport-McMoRan Inc. FCX is set to release first-quarter 2017 results ahead of the bell on Apr 25.

Last quarter, the mining company delivered a negative earnings surprise of 21.87%. Freeport beat the Zacks Consensus Estimate in one of the trailing four quarters, while missing in the other three with an average negative surprise of 33.36%.

Let’s see how things are shaping up prior to this announcement.

Freeport-McMoran, Inc. Price and EPS Surprise

Freeport-McMoran, Inc. Price and EPS Surprise | Freeport-McMoran, Inc. Quote


Factors at Play

Freeport, in its fourth-quarter call, said that it anticipates consolidated sales around 2.2 million ounces of gold, 92 million pounds of molybdenum and 4.1 billion pounds of copper for 2017. The company noted that these figures are subject to the resumption of concentrate exports by PT-FI in Feb 2017 as well as PT Smelting’s export license being renewed.

Freeport, in February, provided an update on the status of PT-FI’s operations and the discussions it had with the government of Indonesia on concentrate exports and the associated Contract of Work (COW). The company revealed that the parties have failed to strike a deal even after five years of discussions with the Indonesian government.

PT-FI’s production in first-quarter 2017 has been hit by the suspension of concentrate exports and a temporary outage since Jan 19, 2017, at PT Smelting. Assuming resumption of PT Smelting’s operations and a continuation of the ban on exports, Freeport said that it expects its first-quarter sales to reduce, resulting in deferrals of around 170 million pounds and 270,000 ounces. This represents a decline of around 17% for copper and 59% for gold of its consolidated first-quarter sales.

The company recently received preliminary approval to resume exports of copper concentrate and is reportedly working on finalizing an export permit. We expect the company to provide an update on its Indonesian operations in the first quarter call.

Freeport, in January, said that it sees consolidated unit net cash costs (net of by-product credits) for copper mines to be $1.06 per pound in 2017, while the average prices of gold and molybdenum are assumed to be $1,200 per ounce and $7 per pound respectively. The company’s copper cost guidance for 2017 reflects a year-over-year decline in consolidated unit net cash costs.

Freeport also remains focused on de-leveraging its balance sheet, partly through assets sale. Freeport previously announced plans to strengthen its balance sheet and speed up its debt-reduction initiatives. It has manageable debt maturities worth $1.2 billion in 2017. Management and control over key activities like production, exploration and administrative costs and capital expenditure should generate cash flows and aid in debt-reduction. Further, Freeport is investing in attractive growth projects and providing cash returns to shareholders.

Freeport completed $6.6 billion in asset sale transactions in 2016 and received $5.2 billion in gross proceeds during fourth-quarter 2016. The company also used the proceeds from its $1.5 billion equity offering to retire outstanding debt.

Freeport’s shares declined 20.3% in the last three months, underperforming the Zacks categorized Mining-Non Ferrous industry’s fall of 3.6%.



Earnings Whispers

Our proven model does not conclusively show that Freeport is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP for Freeport is currently pegged at -6.25%. This is because the Most Accurate estimate is 15 cents and the Zacks Consensus Estimate is 16 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Freeport currently carries a Zacks Rank #3, which when combined with a negative ESP, makes surprise prediction difficult. You can see the complete list of today’s Zacks Rank #1 stocks here.

Note that we caution against Sell-rated stocks (#4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies in the basic materials space you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:

The Chemours Company CC has an Earnings ESP of +4.08% and sports a Zacks Rank #1.

Albemarle Corporation ALB has an Earnings ESP of +2.11% and carries a Zacks Rank #2.

Franco-Nevada Corporation FNV has an Earnings ESP of +15% and carries a Zacks Rank #3.

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