Worried! That's how I'm sure the majority of Fortescue Metals Group Limited (ASX: FMG) shareholders are feeling leading up to the company's earnings report on February 17.
Fortescue had a terrific 2014 financial year with high iron ore prices resulting in earnings per share of 93.3 cents and a net profit of nearly $2.9 billion.
2015 Difficulties
As most will know, Fortescue remains one of the few remaining Australian iron ore producers selling ore at break-even or marginally profitable prices. With the price of its core product declining by over 50% compared to 12 months ago, analysts have scrambled to re-assess their modelling of Fortescue's predicted profits for the financial year.
The mean average of 14 analysts' estimates produces a forecast net profit for the full year of $842 million, however the estimates range from $365 million (reasonable) to $1,721 million, which seems… unlikely… to say the least.
Guestimates
Fortescue's share price has risen lately following an upbeat production report that showed costs had reduced more than expected, the confirmation of the group's BB+/Stable credit rating from S&P, and the purchase of 5% of the company's shares by US-based fund The Capital Group.
Despite this, the vast range of estimates for the group's full year profit makes it exceptionally hard to put a best guess on the 'target' net profit for February 17. The full-year net profit estimate of all brokers has fallen from over $2 billion just six months ago to $841 million today and is highly reliant on the iron ore price.
The half-year result will provide analysts with a much better guide of the company's profitability, which appears to be lacking at the moment.
Should you be worried?
Probably, however the share price jumped nearly 10% earlier this week when cash costs released were lower than expected, so profit could surprise to the upside too. Buyers beware as I'm afraid very few know what will happen!
