Freeport-McMoRan Earnings Preview: Will There Be a Turnaround?

Freeport-McMoRan [stock_market_widget type="inline" template="generic" color="default" assets="FCX" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] had a promising start to 2019 but that soon faded after it emerged that a global economic slowdown and the company’s transition in Indonesia will turn out to be headwinds. Freeport stock is currently down over 7% in 2019, and investors will be hoping for some good news when the company releases its results on Oct. 23.

But will there be a turnaround? Let’s find out.

The Headline Numbers Are Going to Drop

According to analyst estimates compiled by Yahoo Finance, Freeport-McMoRan’s top line is expected to plunge nearly 28% year over year in the third quarter of 2019. The company is expected to post break-even earnings per share as compared to a profit of $0.35 per share a year ago.

This anticipated plunge in Freeport’s financial performance is not surprising as Freeport’s copper and gold output should have taken a big hit during the third quarter. That can be attributed to the transition at the Grasberg mine in Indonesia, where Freeport is currently working to convert the mine from an open-pit operation to an underground one.

This move is proving to be costly for the company as it is not only hurting production, but is also leading to a spike in the cost profile and keeping Freeport from taking advantage of higher gold prices. In fact, a report on Forbes points out that Freeport-McMoRan could end up losing $3 billion as a result of this transition.

However, Freeport-McMoRan believes that the short-term pain will soon give way to long-term gains by way of higher production and lower costs. Once the Grasberg mine in Indonesia comes online, Freeport believes that its annual copper production will jump from 3.8 billion pounds last year to 4.8 billion pounds in 2023.

But until that happens, Freeport stock could continue to remain in trouble.

Freeport Is Facing Headwinds

Analysts are expecting a rebound to begin at Freeport-McMoRan starting next year, but that might not materialize given the end-market conditions.

Analysts are expecting a rebound to begin at Freeport-McMoRan starting next year, but that might not materialize given the end-market conditions. Its revenue is expected to increase 5% and earnings per share are expected to multiply from $0.08 per share in 2019 to $0.53 per share next year.

However, Freeport-McMoRan could miss those estimates as copper prices are not in the best shape thanks to the trade war going on between the U.S. and China. For instance, the import of refined copper by China is expected to drop around 15% in 2019 according to research firm Antaike as local production increases and consumption slows down.

What’s more, the copper market is expected to report a surplus this year and in 2020 as per Fitch. As a result, the price of the metal will continue to remain weak. In such a scenario, expecting a turnaround from Freeport-McMoRan doesn’t look like a good idea because of the copper price challenges and the production bottlenecks it is facing.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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