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Will Lower Copper Prices Dent Freeport's (FCX) Q2 Earnings?

Freeport-McMoRan Inc. FCX is set to release second-quarter 2019 results on Jul 24, before the opening bell.

The stock has lost 29.4% in the past year compared with the industry’s 15.4% decline.

Factors at Play in Q2

Earlier this month, the company provided revised estimates for second-quarter 2019. Freeport projects consolidated copper sales volumes to approximate the April 2019 estimates of 800 million pounds in the to-be-reported quarter. Higher copper sales from the Americas are expected to offset lower copper sales from Indonesia.

Gold sales are expected to be around 190,000 ounces, lower than the previous expectation of 265,000 ounces. The decline can be attributed to mine sequencing changes in the Grasberg open pit that delayed the company’s access to high-grade material.

The company mentioned that LME copper prices averaged at $2.77 per pound in second quarter, with average three-month forward price of $2.72 per pound at the end of June. Freeport anticipates to record copper sales for the second quarter at average price of roughly $2.73 per pound, which is 5.9% lower than $2.90 per pound realized in the first quarter.

In March, the company provisionally priced copper sales at its copper mining operations totaling 364 million pounds at average price of $2.94 per pound. However, the company anticipates that mark-to-market impact of lower copper prices in the second quarter will lower revenues by roughly $85 million.

Notably, unit net cash costs from the Americas for the second quarter are expected to be in line with prior estimates. The company currently expects consolidated unit net cash costs to be around 15% higher from the prior guidance of $1.67 per pound of copper given in April 2019.

Based on the projected realized prices as well as updated gold sales and cost outlook for the second quarter, the company projects adjusted EBITDA to be around $430 million. It also expects to incur a loss of roughly 5 cents per share to net income before any non-recurring items.

What do the Estimates Say?

The Zacks Consensus Estimate for Freeport’s second-quarter consolidated revenues is currently pegged at $3,591 million, suggesting an expected year-over-year decline of around 30.5%.

The Zacks Consensus Estimate for total net cash costs per pound of copper for the second quarter is currently pegged at $1.91, indicating an expected jump of nearly two-folds year over year and a rise of 7.3% sequentially.

The consensus estimate for consolidated copper sales in the to-be-reported quarter is 797 million pounds, indicating an expected decline of 21.4% year over year.

The consensus mark for average realized copper price per pound for the second quarter is pegged at $2.78, indicating an expected 9.7% decline year over year.

What the Zacks Model Says?

Our proven model does not show that Freeport is likely to beat estimates this quarter. This is because a stock needs to have 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:

Earnings ESP: Earnings ESP for Freeport is 0.00%. The Most Accurate Estimate and the Zacks Consensus Estimate are currently pegged at a loss of 5 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 0.00% ESP makes surprise prediction difficult.

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

Freeport-McMoRan Inc. Price and EPS Surprise


Freeport-McMoRan Inc. price-eps-surprise | Freeport-McMoRan Inc. Quote


Stocks Poised to Beat Estimates

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

Franco-Nevada Corporation FNV has an Earnings ESP of +2.65% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Barrick Gold Corporation GOLD has an Earnings ESP of +13.51% and carries a Zacks Rank #2.

Carpenter Technology Corporation CRS has an Earnings ESP of +0.64% and carries a Zacks Rank #3.

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