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FMG earnings preview: 3 things to consider ahead of full-year results

Fortescue Metals Group, the iron ore heavy-weight is set to announce its 2019 results this coming Monday. Here are 3 key things investors should be aware of ahead of this release.

With Fortescue Metals Group (ASX: FMG) set to announce its FY19 results this Monday, August 26; here are three key things that every investor should know.

FMG share price: are record results coming?

Fortescue Metals Group Ltd has seen its share price come under pressure in the last couple of months, as the outlook for iron ore sours.

Indeed, Fortescue was not the only one caught up in this skittish sell-off – both BHP Billiton Ltdand Rio Tinto Ltd have also fallen, as iron ore prices drop below US$100 per tonne.

Even so, if FMG’s latest quarterly activities report is anything to go by, as well as the surging iron ore prices over the last 12-month period, the miner looks set to post strong FY19 results this Monday.

In FMG’s last quarterly report for example, the company reported record production results – shipping 46.6 million tonnes during the June quarter – while maintaining a world-class production cost of US$12.78 per wet metric tonne.

All up, FMG’s 2019 shipments have reached an impressive 167.7 million tonnes.

Of course, how investors will respond, and more relevantly, how FMG’s share price will fare when the company releases its final 2019 results this coming Monday, is anyone’s guess.

Investors would do well to remember that year-to-date FMG has outperformed the ASX 200 by a significant margin, seeing its share price rise a massive 75% in that period.

Will iron ore prices keep suffering?

Though volatile in recent times, the impact of fast-rising iron ore prices over the last 12-month period was evident in FMG’s June quarterly release.

Here, the iron ore giant noted that the:

‘Average revenue received increased by 30 per cent to US$92 per dry metric tonne (dmt) compared to the March quarter of US$71/dmt.’

Mind you, when Fortescue Metals Group Ltd reported those results on July 25, iron ore was priced at US$112 per metric tonne. The iron ore price has since fallen to US$92 per metric tonne.

It’s no surprise then, that between that same period, FMG has also seen its share price fall some 11% from A$8.25 to A$7.27 per share.

Worse still, when BHP and Rio Tinto reported their earnings results earlier this month, they made comments that suggest a weaker – and at the at the very least more volatile – iron ore outlook in FY20 and beyond.

Here, and as we previously cited in our commentary on BHP’s FY19 results, the company noted that:

'We expect supply conditions will return to a more normal path on a one to three year timeframe, and prices are likely to be volatile as that adjustment takes place.’

Beyond supply issues, Rio Tinto, speaking of China’s industrial activities, also pointed out that the US-China trade tensions have created elevated levels of uncertainty and are impacting China's all-important manufacturing sector.

Australia, after all, exports approximately 80% of its iron ore to China.

Adding to this weakness, the Brazilian mining behemoth Vale just recently partially resumed production, after being shut down following a dam disaster earlier in the year.

As we reported previously, Vale 'now expects to contribute an additional 5 million tonnes to annual iron ore production' in 2019.

What analysts currently think of FMG

These broader factors impacting the iron ore outlook have caused analysts to mildly readjust their views on Fortescue Metals Group Ltd in the last few months.

As it stands though and according to the Wall Street Journal, FMG has six buy recommendations and five sell recommendations. On a consensus basis, the company is a hold.

It will be interesting to see if analysts change their view on FMG's shares following the FY19 release.

With all this considered, investors will likely be keen to see any comments from FMG regarding the company's outlook on the iron ore market when it releases its 2019 full-year results in under five days, on Monday, August 26.

Click here now to read our recent coverage of BHP’s 2019 full-year results.

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

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