Earnings Preview: Freeport-McMoRan

Freeport-McMoRan Copper & Gold (FCX - Analyst Report) is scheduled to report its fourth quarter and full year 2011 results before the market opens on Thursday, January 19. The Zacks Consensus Estimate for the quarter is 69 cents per share, representing an estimated year-over-year slump of about 57.96%. For the full year, the Zacks Consensus Estimate is $4.87 per share, up roughly 5.12% from the previous year.

We do not expect Freeport to report extraordinary result this quarter given the weakness in the economy, the increase in raw material prices and the prolonged strike at PT Freeport Indonesia.

Previous Quarter Performance

Freeport’s third-quarter earnings per share of $1.10 missed the Zacks Consensus Estimate by 2 cents per share.

Revenues in the quarter were $5.20 billion, surpassing the Zacks Consensus Estimate of $5.01 billion. Consolidated sales from mines totaled 947 million pounds of copper, 409,000 ounces of gold and 19 million pounds of molybdenum compared with 1.1 billion pounds of copper, 497,000 ounces of gold and 17 million pounds of molybdenum in the second quarter of 2010.

Earnings Estimate Revisions - Overview

Ahead of the earnings release, the Zacks Consensus Estimates for the fourth quarter and full year are slightly down in the last 30 days. However, in the last 7 days, the Zacks Consensus Estimate for the fourth quarter and full year has gone up, due to the end of the prolonged strike and the expansion of reserves to support the development of additional future production capacity in large minerals districts.

Agreement of Estimate Revisions

Of the 17 analysts covering the stock, 2 have increased their estimates for the fourth quarter, while only one has moved in the opposite direction over the last 7 days.

Moreover, for full-year 2011, there are 2 upward estimate revisions and 1 downward movement. For full-year 2012, 2 downward revisions were witnessed while none moved up over the last 7 days.

Magnitude of Estimate Revisions

The Zacks Consensus Estimates for the fourth quarter and full-year 2011 spiked over the last 7 days. The Zacks Consensus Estimate for the fourth quarter increased from earnings per share of 67 cents to 69 cents. For full-year 2011, the estimate increased by 1 cent to $4.87 per share.

Earnings Surprise

Freeport’s performance has been stable over the trailing four quarters with respect to earnings surprises. The average earnings surprise was a positive 11.6%. This implies that the company has beaten the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Our Viewpoint

Freeport is conducting exploration activities near its existing mines with a focus on opportunities to expand reserves that will support the development of additional future production capacity in the large minerals districts, where it currently operates.

We believe the favorable exploration results indicate opportunities for significant future potential reserve additions in North and South America and in the TenkeFungurume minerals district. The drilling data in North America continues to indicate the potential for expanded sulfide production.

Going by estimate revision trends and the magnitude of revision, there is admittedly a marginal downward pressure on the shares over the near term.

Freeport maintains a Zacks #3 Rank, which translates into a short-term Hold rating. However, considering the company’s business model and fundamentals, we have a long-term Neutral recommendation on the stock.

The company faces stiff competition from Newmont Mining Corp. (NEM - Analyst Report) and Southern Copper Corp. (SCCO - Snapshot Report).

Read the full analyst report on FCX

Read the full analyst report on NEM

Read the full analyst report on SCCO