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What's in Store for Freeport (FCX) this Earnings Season?

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

Last quarter, the mining company reported a negative earnings surprise of 11.76%. Freeport missed the Zacks Consensus Estimate in all of the trailing four quarters with an average negative surprise of 41.30%.

Freeport’s shares have declined 17.1% in the last six months versus the 0.9% growth of its industry.


 

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

Factors at Play

Freepost, in last earnings call, revised its annual guidance and the company now anticipates sales volumes for 2017 to be roughly 3.9 billion pounds of copper (down from 4.1 billion pounds expected earlier), and1.9 million ounces of gold (down from 2.2 million ounces expected earlier). Freeport expects to produce 93 million pounds of molybdenum, including 1 billion pounds of copper, 440,000 ounces of gold and 24 million pounds of molybdenum in second-quarter 2017. Estimated sales volumes assumed normal operating rates at PT-FI beginning mid-Apr 2017.

The company assumes that the average prices of gold and molybdenum to be $1,250 per ounce and $9 per pound for the balance of 2017.

Lingering uncertainties surrounding the Grasberg mine in Indonesia is weighing on the company's stock. Freeport’s copper sales volumes in Indonesia slid 28% in the first quarter, hurt by regulatory restrictions on PT Freeport Indonesia’s (PT-FI) concentrate exports since mid-Jan 2017. Gold sales volumes also fell in the quarter. Although PT-FI has resumed exports, Freeport cut its copper and gold sales volume guidance for 2017, partly due to the impact of the suspension of exports in Indonesia. Freeport has also reduced its Indonesia workforce by 10% and cut investments in the Grasberg underground expansion.

The uncertain copper pricing environment represents another concern. Freeport’s average realized copper prices fell roughly 6% in 2016. While copper prices have enjoyed a healthy run so far in 2017, prices are expected to remain under pressure in the second half of the year on concerns over an economic slowdown in China. Moreover, uncertainty regarding inventory levels may also cause fluctuations in copper pricing.

Concerns over a possible economic slowdown in China (a major market for copper) add to the woes. China’s move to tighten credit growth could hurt demand for copper in its property and infrastructure sectors. Chinese copper demand growth is expected to moderate on a year over year basis in 2017.

Freeport-McMoran, Inc. Price and EPS Surprise

 

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

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 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 +5.26%. This is because the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 20 cents and 19 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 #4 (Sell), which when combined with positive ESP, makes surprise prediction difficult. You can see the complete list of today’s Zacks #1 Rank 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 Poised to Beat Estimates

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:

Newmont Mining Corporation NEM has an Earnings ESP of +21.43% and carries a Zacks Rank #3.  

Agnico Eagle Mines Limited AEM has an Earnings ESP of +13.33% and carries a Zacks Rank #1.

Iamgold Corporation IAG has an Earnings ESP of +300.00% and carries a Zacks Rank #3.  

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Newmont Mining Corporation (NEM): Free Stock Analysis Report
 
Agnico Eagle Mines Limited (AEM): Free Stock Analysis Report
 
Iamgold Corporation (IAG): Free Stock Analysis Report
 
Freeport-McMoran, Inc. (FCX): Free Stock Analysis Report
 
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