Freeport-McMoRan Inc.’s (FCX, Financial) second-quarter results on sales were impressive. The company reported a whopping 40% increase in revenue of $5.2 billion on a year-over-year basis. That level of quarterly turnover backed an adjusted net profit of 58 cents per share or an adjusted net income of $853 million.
Freeport-McMoRan beat consensus on adjusted earnings per share of 6 cents and on the quarterly revenue by $260 million. The beat on net earnings produced a positive surprise of 11.5%.
This superb sales result has strengthened the balance sheet to the extent that makes shareholders look at the future with optimism.
If the international trade actions cause a decline in the price of copper, Freeport-McMoRan is now more prepared to go through the period as its balance sheet is financially stronger than it was in the past.
The debt-to-cash ratio, which is one of the major ratios used to measure the financial strength of the business improved by 9.4% to 0.35 from the previous quarter. That was thanks to a 4.2% increase in the immediate liquidity available on hand to $3.86 billion and thanks to a 4.1% decrease in total debt to $11.13 billion. Freeport-McMoRan can now rely on a higher degree of self-determination if it must adapt plans to better respond to a deterioration in the conditions of the market.
If the outlook for the red metal stays positive, the balance sheet well positions the company to benefit from the copper marketr. The company is an international leader in the red metal, thanks to a portfolio composed by hardly replicable assets.
For full fiscal 2018, Freeport-McMoRan will face commodities markets with a forecasted placement of 3.8 billion pounds of copper, 2.4 million ounces of gold and 95 million pounds of molybdenum. The net cash cost is expected to average $1.04 per pound of copper. The operating cash flow is predicted to be $4.3 billion. Funds used as capital expenditure are predicted to be $2 billion.
The company could improve figures of its balance sheet mainly through an increase in the operating cash flow and to a thriftier allocation of financial resources on long-term projects. Cost efficiencies, higher commodity prices and sales volumes boosted the operating cash flow to $1.31 billion, a 26.2% increase year-over-year, and the free cash flow to $827 million, a 23% increase year-over-year.
In the second quarter of 2018, the company produced 1.014 billion pounds of copper, a 14.8% increase year-over-year, and sold 989 million pounds of the red metal, a 4.9% increase year-over-year, at an average price of $3.08 per pound, which was 16.2% higher than the comparable of 2017.
Approximately 60% of the total revenue came in from the sale of the red metal. The company also produces and sells gold and molybdenum. Gold accounts for 15% to 17% of total revenues and molybdenum accounts for about 6%. Freeport-McMoRan sold 676,000 ounces of gold, a 56.5% growth on a year-over-year basis, at a price of $1,274 per ounce and sold 24 million pounds of molybdenum, a 4% decrease year over year, at a price of $12.89 per pound. The price of gold and molybdenum increased by 2.5% and by 34.6% from the comparable of 2017.
Increased production and sales volumes were possible thanks to higher volume of ore processed at the mill facility in Indonesia. A higher ore grade was also supportive.
CEO Richard C. Adkerson said that the company continues to make progress on its plans for a long-term partnership with the government of Indonesia. The agreement is related to mineral resources at Grasberg.
On Wednesday, the stock fell1.31% to $15.86 per share. However, impressive results on sales, cash flow and improved figures on the balance sheet will surely trigger stock appreciation.
The stock is cheap with a market capitalization of $22.98 billion. It is still below the 200, 100 and 50-SMA lines. The 52-week range is between $13.22 and $20.25 per share.
The majority of the analysts recommended a hold on the stock. The average target price is $19.46 per share. The price target range has a low of $15.5 and a high of $30 per share.
(Disclosure: I have no positions in any security mentioned in this article.)
