Freeport's (FCX) Q1 Earnings: What's In Store For The Stock?

Freeport-McMoRan Inc. (NYSE:FCX) is set to release first-quarter 2018 results before the opening bell on Apr 24.

Last quarter, the mining company delivered a positive earnings surprise of 4.1% by posting adjusted earnings of 51 cents per share, which surpassed the Zacks Consensus Estimate of 49 cents.

Revenues went up around 15.2% year over year to $5,041 million, also surpassing the Zacks Consensus Estimate of $4,811.2 million.

Notably, Freeport beat the Zacks Consensus Estimate in two of the trailing four quarters while missing the other two, with an average negative surprise of 1.4%.

Can the company surprise investors again or is it heading for a possible pullback? Let’s see how things are shaping up for this announcement.

Factors at Play

Freeport, during fourth-quarter earnings call, stated that the company anticipates consolidated sales volumes for 2018 to be roughly 3.9 billion pounds of copper, 2.4 million ounces of gold and 91 million pounds of molybdenum, including 1 billion pounds of copper, 675,000 ounces of gold and 24 million pounds of molybdenum for first-quarter 2018.

The company assumes average prices of $3.15 per pound of copper and $1,300 per ounce of gold for 2018. Notably, average realized prices for copper and gold were $3.21 per pound (up from $2.48 a year ago) and $1,285 per ounce (from $1,174 a year ago), respectively, in the fourth quarter. The company gained from higher copper prices in the last reported quarter.

The Zacks Consensus Estimate for consolidated revenues is $4,760 million, reflecting a year-over-year increase of around 42.5%. Meanwhile, consolidated copper production for the first quarter is expected to fall 2.6% from the prior quarter as the Zacks Consensus Estimate stands at 991 million pounds.

Total copper sales from Freeport’s North American Copper Mines for the first quarter are projected to witness a 4.8% rise sequentially as the Zacks Consensus Estimate for the quarter is pegged at 371 million pounds. The segment’s sales volume decreased in the previous quarter mainly due to lower ore grades.

Total copper sales from the company’s South American Mining are expected to see a 2.6% decrease from the fourth quarter as the Zacks Consensus Estimate for the first quarter is pegged at 304 million pounds.

Copper sales from Indonesia Mining are expected to fall around 10% on a sequential basis as the Zacks Consensus Estimate for the first quarter is currently pegged at 316 million pounds. However, gold sales from Indonesia Mining are projected to increase roughly 1% from last quarter as the Zacks Consensus Estimate for the first quarter is pegged at 590,000 ounces.

Rising unit net cash costs for copper in Freeport’s North American operation is a concern. Unit net cash cost per pound of copper for North America increased from $1.41 in 2016 to $1.57 in 2017, and is expected to be roughly $1.67 per pound this year, mainly reflecting lower expected sales volumes. Also, the unit net costs for South American mines increased last year due to higher mining and milling costs at Cerro Verde and lower sales volumes.

Nevertheless, Freeport should gain from favorable copper market conditions, its focus on productivity along with cost and capital discipline.

Shares of Freeport have lost 3.9% in the last three months, underperforming the industry’s 2.9% decline.

Earnings Whispers

Our proven model does not conclusively show that Freeport is likely to beat the Zacks Consensus Estimate this quarter. That 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. That is not the case here, as you will see below:

Zacks ESP: Earnings ESP for Freeport for the first quarter is -6.67%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are currently pegged at 55 cents and 59 cents, respectively. 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.

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 Poised to Beat Estimates

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

Allegheny Technologies Incorporated (NYSE:ATI) has an Earnings ESP of +9.38% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

FMC Corporation (NYSE:FMC) has an Earnings ESP of +1.43% and carries a Zacks Rank #2.

Kinross Gold Corporation (NYSE:KGC) has an Earnings ESP of +12.90% and carries a Zacks Rank #3.

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