Freeport-McMoRan (FCX) Q3 Earnings: A Beat In The Cards?

Freeport-McMoRan, Inc. (NYSE:FCX) is slated to release third-quarter 2016 results ahead of the bell on Oct 25.

Last quarter, the mining company delivered a negative earnings surprise of 100%. Freeport has beaten the Zacks Consensus Estimate in two out of the four trailing quarters, while missing in two, with an average negative surprise of 20.45%.

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

Factors to Watch For

Freeport is taking steps to manage costs and capital spending amid a challenging operating environment. It also remains focused on deleveraging its balance sheet, partly through assets sale. Further, Freeport is investing in attractive growth projects and providing cash returns to its shareholders.

Freeport remains focused on reducing debt and enhance shareholder value, in part, through divestitures and joint venture transactions. Freeport’s board has been making a strategic review of its oil and gas business to assess alternatives designed to increase value to the company’s shareholders. The company's fully-owned subsidiary – Freeport-McMoRan Oil & Gas Inc. (FM O&G) recently inked an agreement with Anadarko for the sale of its Deepwater Gulf of Mexico (GOM) properties for $2 billion in cash. The sale of the GOM assets will aid Freeport to cut debt and allocate resources to its core copper business. The company continues to assess its portfolio for potential future actions and aims to maintain a strong financial position, with focus on reducing debt.

Freeport also recently agreed to sell its onshore California oil and gas properties to private energy company, Sentinel Peak Resources California LLC for $742 million, including contingent consideration. The transaction, which is subject to customary closing conditions, is expected to be complete in fourth-quarter 2016. Freeport does not anticipate recording a material gain or loss on the transaction. It plans to use the net cash proceeds from the transaction to repay debt.

Proceeds from the stake sale in Morenci has also allowed Freeport to deleverage its balance sheet.

Freeport also remains actively focused on managing costs. Benefits of the company’s ongoing cost-cutting initiatives were evident in the second quarter, manifested by a year over year decline in consolidated average unit net cash costs of copper. Freeport’s copper cost guidance for 2016 reflects a considerable year over year decline in consolidated unit net cash costs. In its oil and gas business, the company also reduced production cost to $15 a barrel from $19 a barrel in the last reported quarter.

However, Freeport’s copper business remains affected by the sluggish global economy and supply related issues. The slowdown in China (a major market for copper) adds to the concern. The weak copper pricing environment also poses a headwind.

FREEPT MC COP-B Price and EPS Surprise

FREEPT MC COP-B Price and EPS Surprise | FREEPT MC COP-B Quote

Earnings Whispers

Our proven model does not conclusively show that Freeport is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP 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 0.00% as both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 19 cents.

Zacks Rank: Freeport carries a Zacks Rank #3 (Hold), which when combined with a 0.00% ESP, makes surprise prediction difficult. Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, Zacks Rank #4 or 5 (Sell-rated stocks) 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:

The Chemours Company (NYSE:CC) has an Earnings ESP of +25.71% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

B2Gold Corp. (NYSE:BTG) has an Earnings ESP of +25% and a Zacks Rank #2.

The Dow Chemical Company (NYSE:DOW) has an Earnings ESP of +1.25% and a Zacks Rank #2.

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