Will Freeport-McMoRan Stock Rebound After the Latest Setback?

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Freeport-McMoRan [stock_market_widget type="inline" template="generic" color="default" assets="FCX" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] stock plunged after the company disappointed investors and analysts with its first-quarter 2019 results. The world’s biggest copper producer delivered a profit that wasn’t up to Wall Street’s expectations, sending Freeport shares down by 9% after the results were released.

Let’s see what went wrong for Freeport last quarter, and if it can make a comeback going forward.

A Closer Look at the Results

Freeport’s net income for the first quarter of 2019 fell to $31 million, or $0.02 per share, down from the year-ago period’s net income of $692 million, or $0.48 per share. On an adjusted basis, Freeport delivered a net income of $0.05 per share, which was lower than the $0.07 per share analysts were originally expecting.

The massive drop in Freeport’s bottom line was a result of tepid production during the quarter. As compared to the original copper sales forecast of 825 million pounds, Freeport only managed to sell 784 million pounds. Likewise, Freeport’s gold sales of 242,000 ounces missed the company’s estimate of 255,000 ounces.

The lower gold and copper production was a result of weather-related events at the El Abra mine. Also, unscheduled maintenance in North America, as well as unfavourable timing of shipments from Indonesia, negatively impacted production. Freeport also witnessed lower mill rates as well as a decline in ore grades in Indonesia as it transitions the mine from an open pit mining operation to an underground operation.

The lower production during the quarter negatively impacted Freeport’s cost profile as well. The company’s consolidated average unit net cash costs for the first quarter of 2019 came in at $1.78 per pound of copper. This represents a massive jump from the year-ago period’s cost figure of just $0.98 per pound.

Additionally, Freeport’s results were dented by weak copper prices during the quarter. The average realized price per pound of copper fell to $2.90 as compared to $3.11 during the year-ago period. So, Freeport’s results were hurt by numerous factors last quarter and not surprisingly, the stock took a beating.

What Next for Freeport?

Don’t expect a big turnaround in Freeport’s financial fortunes in the next few quarters. It’s estimated the company’s revenue will be down nearly 20% this year.

Freeport-McMoRan is in a transition phase for the next couple of years. After recording sales of 3.8 billion pounds of copper last year, Freeport expects sales of 3.3 billion pounds of copper in 2019.

Freeport attributes the lower copper production for this year to the transition at its Indonesian operations. In fact, Freeport’s output will be “significantly lower” in 2019 and 2020 before picking up the pace in 2020.

As such, Freeport-McMoRan investors shouldn’t expect a big turnaround in the company’s financial fortunes in the next few quarters. According to Yahoo! Finance estimates, Freeport-McMoRan’s revenue will be down nearly 20% this year. Its earnings this year will decline to $0.47 per share as compared to $1.52 per share last year.

A turnaround is expected next year when revenue could rise in the mid-single digits, while earnings are expected to increase to $0.92 per share. As such, Freeport-McMoRan stock could be in for more pain until and unless its operations start improving again.

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The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
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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