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Total Expenses were $15.7 Billion in 2018
Breakdown of Freeport-McMoRan's Total Expenses in 2018 :
Total = $15.7 Bil
Cost of Sales = $13.4 Bil
Operating Expenses = $429 Mil
Non-operating expense = $869 Mil
Provision for income taxes = $991 Mil
Freeport-McMoRan's total expenses have trended steadily lower from around $18.9 billion in 2016 to about $15.7 billion in 2018.As a percentage of revenues, expenses have decreased from 127% in 2016 to 84% in 2018.Cost of sales is the biggest expense head for the company, with it being about 118% of revenue in 2016, before decreasing to 72% of revenue in 2018. This decrease alone has helped in adding over $4 billion to FCX's profits, which translated into additional earnings of $2.80 per share between 2016 and 2018.However, with revenue expected to drop sharply in the near term, cost of sales as % of revenue is likely to rise to 88% in 2019, leading to a projected drop in net income margin from 15.5% in 2018 to 1% in 2019.The projected decline in margins (due to the planned production cuts on account of the mine transition at Grasberg) is one of the major factors behind the 30% drop in Freeport-McMoRan's stock price in the last 2 years.Below, we take a look at the key drivers of Freeport-McMoRan's expenses and net margins.
Freeport-McMoRan's Total Expenses Have Decreased From $18.9 Billion in 2016 to $15.7 Billion in 2018
Change in Total Expenses
Freeport-McMoRan's total expenses have decreased from $18.9 billion in 2016 to about $15.7 billion in 2018.
For 2019, we expect total expenses to stand at $14.5 billion, which comprises of
1) Cost of Sales: $12.9 billion
2) Operating Expenses: $615 million
2) Non-Operating Expense: $750 million
3) Income Taxes: $250 million
Below, we take a look at how the company's key expense components have trended and the key reasons for the change.
Freeport-McMoRan Revenues: How Does Freeport-McMoRan Make Money?Freeport-McMoRan's Valuation: Expensive or Cheap?More Trefis Materials Data
A) SG&A Expense has decreased from $597 Mil in 2016 to $443 Mil in 2018. Expense declined sharply in 2017 due to the absence of any restructuring charges ($85 Mil included in 2016). As a % Revenues, SG&A has steadily decreased from 4% to 2%. Metric is expected to rise in the near term to about 3% due to a sharp fall in revenues
SG&A as % of Revenue
B) Mining Exploration & Research (E&R) Expenses increased from $63 million in 2016 to about $105 million in 2018 due to continuous spending on increasing reserves and resources. As a % of Revenue, E&R expenses have increased from 0.4% and 0.6% during the same period, and is expected to rise further to 0.8% in 2019 due to additional spending on the Lone Star project
Mining exploration and research
Mining exploration and research as % of Revenue
C) Environmental obligations increased sharply from $14 million in 2016 to about $244 million in 2017 due to adjustments resulting from revised cost estimates, before falling to $89 million in 2018. As a % of Revenue, they increased from 0.1% in 2016 to 1.5% in 2017, before falling back to 0.5% in 2018. It is expected to remain around the current level in the near term, due to shutdown cost related to Indonesian operations
Environmental obligations as % of Revenue
D) Gain on Asset Sales decreased sharply from $649 million in 2016 to about $81 million in 2017, as the 2016 number was high due to Morenci and Timok transactions, while it again increased in 2018 due to contingent consideration related to the 2016 sale of onshore California oil and gas properties. As a % of Revenue, gain on asset sales have remained volatile and it is expected to remain close to 0.1% over the near term
Gain on asset sale
Gain on asset sale as % of Revenue
4. Freeport-McMoRan's Income Tax Expense has increased from $371 million in 2016 to $991 million in 2018, with Effective Tax rate rising from -10.7% to 25.5% during the same period. The rise was sharp in 2017 due to one-time charges related to TCJ Act and higher tax outgo in Indonesia. Effective tax rate is expected to be around 25% in the near term
Effective Tax Rate
DISAGREE WITH OUR FORECASTS? CREATE YOUR OWN
1. How to save your forecasts:
Click on the blue "Try Trefis" button in the header to create an account, then navigate back to this dashboard. Now, any changes you make to these inputs will be auto-saved as a scenario (see left panel of dashboard).
2. How to monitor your scenario vs. actual results
Once you've saved your forecast, you can "rename" your scenario by clicking on the gear icon next to the scenario (on the left panel). For more info, see this quick, 30-sec video (look at the 9 sec mark)
With your forecast saved and named, you can see how well you forecast the company's performance at the end of each period and compare your forecasts to hundreds of other Trefis users who came up with their own forecasts. Lastly, you can share with friends and colleagues to show them how you fared and compare your forecasts to theirs.