Earnings Recap: Freeport-McMoRan (FCX) Trades Higher Off Earnings Beat

Earnings: Q2 profit of $1.40 vs. estimates of $1.28 and $1.38 for Q2 last year.

Revenue: Up 4.9% to $3.86 billion vs. estimates of $3.53 billion.

CEO Richard Adkerson pronounced that he is “optimistic about copper markets,” and sees Freeport’s (NYSE: FCX) order books  “filling more strongly than we have in some time.”

He added that, “the physical [copper] markets are stronger than the economic indicators in the United States,” noting that inventories of the metal held in exchange-monitored warehouses have been declining.

Comment: FCX, the world’s second-largest copper producer (behind only Chile’s state-owned Corporacion Nacional del Cobra de Chile), benefited primarily from higher copper prices compared to Q2 last year, a time in which the global economic downturn sapped demand. This price bump was taken by management as a cause to double the comapny’s dividend this past April.

FCX is also starting to consider reopening some  mining projects that it shelved during the economic downturn, such as the Chino mine in New Mexico.  Bringing that mine back online would boost the company’s annual copper production by between 150 million and 200 million pounds, with sales of 3.8 billion pounds forecast for 2010. Chino was suspended in late 2008. Freeport is also ramping up its Morenci mine in Arizona, looking to boost output by 41% to 635,000 tons of ore a day.  Molybdenum production was up 31% YOY.

Still, there is some reason for worry, as copper prices, though roughly 25% higher than they were a year ago, have been pulling back amidst worries about the sustainability of the current economic recovery.

Freeport hit its high of the year on Jan. 11 when it briefly touched $90.55 and has generally trended downward ever since.  Recent activity, 5 straight up-days on mostly higher volume, probably represents the most strength shares have demonstrated all year.  If the stock can break out of its current range, a continued economic recovery might give shares legs all the way back to the aforementioned highs.  However, it’s worth noting that a failure of the recovery would put serious pressure on shares, making them a good candidate for a short.

Disclaimer: No holdings in FCX.