Freeport-McMoRan (FCX) Q2 Earnings: Will It Beat Estimates?

Freeport-McMoRan, Inc. (NYSE:FCX) is set to release second-quarter 2016 results ahead of the bell on Jul 26.

Last quarter, the mining company delivered a positive earnings surprise of 20.00%. Freeport has beaten the Zacks Consensus Estimate in three of the trailing four quarters, while missing in one, with an average positive surprise of 11.37%.

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

Factors to Watch For

Freeport reported a loss of $3.35 per share for first-quarter 2016, compared with a loss of $2.38 per share a year ago. The results include net charges of $4 billion or $3.19 per share, mainly related to the reduction of the carrying value of oil and gas properties. Barring that impact, adjusted net loss was $0.16 a share in the first quarter, narrower than the Zacks Consensus Estimate of a loss of $0.20.

Revenues declined 15.1% year over year to $3,527 million in the reported quarter and missed the Zacks Consensus Estimate of $3,667 million.
For 2016, Freeport expects consolidated sales to be around 5 billion pounds of copper, 1.85 million ounces of gold, 71 million pounds of molybdenum and 54.4 MMBOE. For second-quarter 2016, the company expects 1.15 billion pounds of copper, 195,000 ounces of gold, 19 million pounds of molybdenum and 13.5 MMBOE.

Freeport is conducting exploration activities near its existing mines with a focus on opportunities to expand reserves that will support the development of additional future production capacity in the large minerals districts, where it currently operates. Favorable exploration results indicate opportunities for significant future potential reserve additions in North and South America as well as in the Tenke Fungurume minerals district. Freeport also continues to progress with its expansion initiatives in Latin America.

Freeport is also taking aggressive actions including assets sales and deferral of capital spending amid a challenging operating environment. The company is taking actions to manage costs and capital expenditures amidst a difficult pricing backdrop, in a bid to strengthen its balance sheet.

Moreover, Freeport’s board is currently undertaking a strategic review of its oil and gas business to assess alternatives (including a potential sale of a part of its oil and gas assets) designed to increase value to the company’s shareholders. Freeport continues to evaluate potential transactions for the sale of certain assets of FM O&G, in an effort to cope with the still challenging commodity pricing environment. The company also continues to assess its portfolio for potential future actions and aims to maintain a strong financial position, with focus on reducing debt.

Freeport, in May 2016, wrapped up the sale of a 13% interest in its Morenci unincorporated joint venture to its Japan-based partner, Sumitomo Metal Mining Co., Ltd. (“SMM”) for $1 billion in cash. The move is part of the company’s efforts to pare debt.

However, Freeport’s copper business remains affected by the sluggish global economy and supply related issues. The depressed oil and copper pricing environment also remains a headwind for the company. Sluggishness in China (a major market for copper) is affecting markets, thereby hurting Freeport’s core copper mining business.

Earnings Whispers

Our proven model shows that Freeport is likely to beat estimates this quarter because it has the right combination of two key ingredients.

Zacks ESP: Earnings ESP for Freeport is +166.67% as the Most Accurate Estimate is currently at 2 cents, while the Zacks Consensus Estimate is pegged at a loss of 3 cents.

Zacks Rank: Freeport holds a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

Stocks That Warrant a Look

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

B2Gold Corp. (NYSE:BTG) has an Earnings ESP of +50% and a Zacks Rank #1.

Agnico Eagle Mines Ltd. (NYSE:AEM) has an Earnings ESP of +9.09% and a Zacks Rank #2.

Alamos Gold, Inc. (TO:AGI) has an Earnings ESP of +100% and a Zacks Rank #3.