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Lower Commodity Prices Ate into Freeport-McMoRan’s 4Q15 Revenues

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Jan. 27 2016, Updated 7:13 p.m. ET

Freeport-McMoRan’s 4Q15 revenues

Revenues for commodity companies such as BHP Billiton (BHP) and Vale SA (VALE) are a function of commodity (COMT) prices and shipments. Shipments depend on demand from end consumers as well as any portfolio actions undertaken by the company.

While commodity prices are decided by market forces, that depends on the balance of supply and demand, as well as prevailing sentiments. In this part of the series, we’ll look at Freeport-McMoRan’s (FCX) 4Q15 revenues.

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Revenues fall

  • Freeport-McMoRan reported revenues of $3.7 billion in 4Q15, a year-over-year (or YoY) decline of more than 27%. The chart above shows the falling trend in Freeport’s revenues.
  • In 4Q15, Freeport sold 1.15 billion pounds of copper, 20 million pounds of molybdenum, 13.2 MMboe (or million barrels of oil equivalent), and 338,000 ounces of gold.
  • The sales volumes fell year-over-year for molybdenum and gold while energy and copper volumes rose over the same period.
  • Freeport-McMoRan reported average realized prices of $2.18 per pound for copper, $1,067 per ounce for gold, and $48.88 per barrel for oil. Please note that realized oil prices also include a cash gain of $11.39 per barrel on derivative contracts.
  • In 4Q15, average realized prices across all these product categories fell compared to 3Q15 and 3Q14. Glencore (GLNCY) and Southern Copper (SCCO), which are expected to release their 4Q15 earnings shortly, would also take a hit on their revenues due to falling commodity prices.

Outlook

  • Freeport-McMoRan has given a guidance of 5.1 billion pounds of copper, 1.8 million ounces of gold, 20 million pounds of molybdenum, and 57.6 MMboe for 2016. Freeport’s 2016 guidance implies a 25% YoY increase in copper shipments and a 9.5% increase in energy sales.
  • Although higher shipments would support Freeport’s 2016 revenues, falling commodity prices could be a drag on revenues.

Meanwhile, along with higher sales volumes, Freeport-McMoRan has given aggressive unit cost guidance for 2016. We’ll discuss this in more detail in the next part of this series.

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