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Mining giant Freeport-McMoRan Copper & Gold (FCX - Analyst Report) is slated to report its second-quarter 2012 results on Thursday, July 19. The Zacks Consensus Estimate for earnings for the quarter is 82 cents a share, representing an estimated year-over-year decline of 44.92%.

With respect to earnings surprises, Freeport has outperformed the Zacks Consensus Estimate in three of the trailing four quarters while missing the same in one quarter. The Arizona-based company has delivered an average positive earnings surprise of 6.76% over the past four quarters, implying that it has beaten the Zacks Consensus Estimate by that measure.

First Quarter Highlights     

Freeport-McMoRan reported a profit of $913 million or 96 cents per share in the first quarter of 2012, a 39% drop from $1.5 billion or $1.57 per share earned in the year-ago quarter. However, the profits surpassed the Zacks Consensus Estimate of 85 cents per share.

The company’s results were affected by interruption of work at its Grasberg mine in Indonesia, partially offset by positive impact from higher sales in North America. Including losses on early extinguishment of debt of $149 million or 16 cents per share, reported net income in the quarter stood at $764 million or 80 cents per share, which was almost half the prior-year quarter’s net income.

Revenues in the quarter were $4.6 billion, a 19% drop from $5.7 billion in the prior-year quarter, but ahead of the Zacks Consensus Estimate of $3.8 billion. Consolidated sales from mines declined to 827 million pounds of copper and 288,000 ounces of gold from 926 million pounds and 480,000 ounces, respectively, in the prior-year quarter.

Outlook

For 2012, Freeport-McMoRan expects consolidated sales of 3.7 billion pounds of copper, 1.1 million ounces of gold and 81 million pounds of molybdenum. In the second quarter, consolidated sales are estimated at 895 million pounds of copper, 235,000 ounces of gold and 20 million pounds of molybdenum.

Estimate Revisions Trend

Agreement

In the past 30 days, five out of 15 analysts covering the stock have lowered their estimates for the second quarter while none moved in the opposite direction. Over the last seven days, two analysts have snipped their estimates for the second quarter with no upward revisions.

Estimates for fiscal 2012 portray almost a similar trend. Of the 16 analysts covering the stock, seven analysts lowered their estimates for the year over the last 30 days while none moved them upwards. There were three downward revisions over the last week for the year with no upward movements.

Magnitude

The Zacks Consensus Estimate for the second quarter has been reduced to 82 cents per share recently from 87 cents in the last 30 days and 84 cents in the last 7 days. The Zacks Consensus Estimate for fiscal 2012 is $3.82, representing an estimated year-over-year decline of 20.97%.

Our View

Freeport is the world's largest producer of molybdenum. The company competes with Newmont Mining Corp. (NEM - Analyst Report) and Southern Copper Corp. (SCCO - Snapshot Report). The company is conducting explorations close to its existing mines with a goal to boost reserves, which will facilitate the development of additional future production capacity across the large minerals districts where it operates.

The company’s favorable exploration data elicit opportunities for meaningful future reserve additions in North and South America as well as in the Tenke Fungurume minerals district in Congo’s Katanga province.

However, higher production cost is a concern for Freeport. Unit costs are expected to rise across the company’s copper-producing segments (specially the Indonesian operations) due to higher input costs.

Further, the Grasberg minerals district, the most significant operating asset of Freeport, is exposed to political, economic and social uncertainties in Indonesia. Uncertainties surrounding the Grasberg mine may continue to weigh on the company’s results.

Currently, the shares of Freeport maintain a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating. We have a long-term (more than 6 months) Neutral recommendation on Freeport.
 

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