The key to any recovery program is first admitting there's a problem and then taking steps to fix it.
We got a quick glimpse of Freeport-McMoRan's (FCX) path to recovery Tuesday. The Phoenix-based natural resources company earned a spot on Real Money's "Stressed Out" list in January due in part to its hefty -- standing at $20 billion -- "junk" rated debt load. While much of the company's fourth-quarter earnings call was dedicated to discussing its plans to get out of the mess, Tuesday's first-quarter call had a much more optimistic tone.
"I am feeling much better today than I did in January," CEO Richard Adkerson said on Tuesday's call. (This is not to say that all of his statements were equally optimistic.)
Freeport reported an adjusted net loss of $0.17 per share on revenue of $3.5 billion, largely in line with analyst estimates for a $0.16 quarterly loss per share on revenue of $3.5 billion. Amid the challenging environment in the commodities in which Freeport deals -- copper, gold, molybdenum, and to an ever decreasing extent, oil and gas -- the company has staged an impressive rally year to date, with the shares trading up nearly 70% to more than $11.
While the company has made progress and has been helped by the recent rebound in gold and copper prices, it still has a lot of work ahead of it.
Freeport announced that it will be reducing its oil and gas workforce by 25% and it expects to record a $40 million charge next quarter due to the layoffs and other restructuring. The company had been under pressure to completely divest itself from this business. However, doing so could prove to be challenging in this low oil price environment. Earlier this month, Freeport announced a new organizational structure for the oil and gas business in an effort to reduce costs -- namely it eliminated the division's executive management team.
But Freeport's main trouble is its debt.
"Our Company is over-leveraged," Adkerson said. "I mean, in the nature of the business that we're in, where you have such high operating leverage from commodity prices, you just should not be this leveraged because when conditions unfold as they do from time to time, and your revenues drop because of what's going on in global commodity prices, having this kind of debt is a killer."
In January, management said it was looking to reduce Freeport's debt load by $5 billion to $10 billion, noting that the process would take time and multiple transactions. So far, the company announced that it has reached agreements to divest itself of $1.4 billion in assets in three transactions, which are expected to close in by the end of the second quarter. Adkerson said that the company is also in advanced talks with interested parties about other asset sales but declined to give more detail on the timing and size of the potential transactions. Still, he repeatedly noted the value of Freeport's assets.
"But at the end of the day, we have good assets. We have great resources," Adkerson said. "We can create a good Company. We're going to have to give up some of those to get us to a position of where we're not over-leveraged."