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What to Expect from Freeport-McMoRan’s Q2 Earnings

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Freeport-McMoRan (FCX), the largest publicly traded copper miner, is expected to release its second-quarter earnings results on June 24. It will hold its earnings call on the same day. Freeport stock is generally volatile after its earnings release. In the last two quarters, it missed on several metrics, including shipments, unit cash costs, and earnings. In a nutshell, if a copper miner misses on its shipments and unit cash costs, it will likely miss on earnings too.

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Freeport’s second-quarter guidance

Historically, Freeport has provided shipment and unit cash cost guidance during its earnings presentations. However, in a departure from this practice, Freeport updated its second-quarter guidance earlier this month. Freeport’s guidance was far below what the market was expecting. It said that it expects its copper shipments to be 800 million pounds, in line with its previous guidance.

However, it lowered its second-quarter gold sales guidance to approximately 190,000 ounces compared to its previous guidance of 265,000 ounces. Because of lower gold sales, Freeport increased its unit cash cost guidance. The company’s average selling price guidance was also way below what analysts were expecting. Freeport expects to post adjusted EBITDA of $430 million and net EPS of -$0.05 in the second quarter.

Freeport’s second-quarter earnings estimates

Looking at Freeport’s second-quarter earnings estimates, we can see that it expects to post revenue of $3.52 billion in the quarter. It posted revenues of $3.79 billion in the first quarter and $5.16 billion in the second quarter of 2018. According to Freeport’s guidance, its copper shipments are expected to rise slightly on a sequential basis. However, it expects its average realized copper prices to average $2.77 per pound in the second quarter compared to $2.90 in the first quarter. Freeport’s gold shipments are expected to fall sharply in the second quarter.

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What to watch for on FCX’s earnings call

Freeport’s second-quarter average selling price guidance was below what analysts were expecting. During its second-quarter earnings call, Freeport might face questions about its copper-pricing strategy. It also might provide more updates on its Indonesian operations. On a macro level, it will be interesting to hear Freeport’s view on copper markets. Copper has looked weak amid concerns about Chinese demand and geopolitical issues.

Analysts’ sentiments

Overall, analysts have been bearish on the entire metals and mining space. However, earlier this month, Deutsche Bank upgraded Freeport to a “buy” from a “hold.” It also raised the stock’s target price from $12.5 to $13.5. Prior to Deutsche’s upgrade, several brokerages downgraded Freeport. Overall, Freeport has received “strong buy” ratings from two analysts, while five have given it “buy” ratings. Twelve analysts have “hold” or equivalent ratings on Freeport, while the remaining one analyst polled by Thomson Reuters has rated the stock as a “sell.” Freeport’s mean consensus price target of $13.44 represents a potential upside of almost 17% over its July 19 closing price.

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