Teck Resources Ltd TECK reported adjusted earnings of 12 cents per share in second-quarter 2020, as against the Zacks Consensus Estimate of a loss of 3 cents. The bottom line, however, tanked 81% year on year due to costs related to the suspension of Quebrada Blanca Phase 2 (QB2) project. The pandemic affected the prices and demand for the company’s products and financial results during the June-end quarter.
Including one-time items, the company reported a loss per share of 20 cents, as against earnings per share of 31 cents recorded in the prior-year quarter.
Net sales of C$1,720 million ($1,241 million) for the quarter plunged 47% year over year on declines witnessed across all segments. However, the top line surpassed the Zacks Consensus Estimate of $1,235 million.
Gross profit, before depreciation and amortization, plummeted 69.8% year over year to C$453 million ($326 million). Gross margin came in at 26.3% compared with the year-ago quarter’s 46.1%. Adjusted EBITDA was C$485 million ($349 million), significantly down 63% from the prior-year quarter. EBITDA margin was 28.1% in the quarter compared with the year-earlier quarter’s 40.3%.
Teck Resources Ltd Price, Consensus and EPS Surprise
Teck Resources Ltd price-consensus-eps-surprise-chart | Teck Resources Ltd Quote
The Steelmaking Coal segment reported sales of C$792 million ($569.8) million, reflecting a year-over-year plunge of 51.9%. Operating profit tanked 99.4% year over year to C$3 million ($2.2 million).
The Copper segment’s net sales fell 39.6% year over year to C$405 million ($291.4 million) in the June-end quarter. The segment’s operating profit came in at C$4 million ($2.8 million) in the reported quarter, marking a year-over-year slump of 95.3%.
The Zinc segment’s net sales declined 24.2% year over year to C$479 million ($344.6 million) in the second quarter. The segment’s operating profit dropped 56.5% year over year to C$46 million ($33.1 million) during this period.
The Energy segment’s net sales slumped 85.6%, year on year, to C$44 million ($31.65 million) in the second quarter. The segment reported an operating loss of C$101 million ($72.7 million) in the June-end quarter, as against the prior-year quarter’s profit of C$31 million ($23.1 million).
The company had cash and cash equivalents of C$336 million ($247.1 million) as of Jun 30, 2020 compared with C$1,529 million ($1,167.9 million) as of Jun 20, 2019. Long-term debt was C$5,383 million ($3,958.1 million) at the end of the second quarter compared with C$4,133 million ($3188.6 million) as of Dec 31, 2019. Cash provided by operating activities decreased to C$579 million ($425.7 million) in the first half of 2020 from C$1,640 million ($1,252.6 million) in the first half of 2019.
The company has issued its guidance for the second half of this year. The guidance reflects uncertainties related to the extent and impact of the pandemic on demand as well as commodity prices, suppliers and global financial markets.
In this scenario, the company has intensified its focus on cost-reduction program. Since the commencement of the program in the fourth quarter of 2019, it has so far achieved approximately $250 million in operating-cost reductions and $430 million in capital-cost reductions.
For the second half of the year, the company expects steelmaking coal production between 11 million tons and 12 million tons. For third-quarter 2020, sales volume is projected at 5-5.4 million tons for the Steelmaking Coal segment.
Copper production in 2020 is expected within 145,000-160,000 tons. Zinc production for this year (including co-product zinc production from the copper business unit) is estimated between 315,000 tons and 345,000 tons. The company expects Bitumen production for the ongoing year between 3.4 million barrels to 4.4 million barrels per day. Red Dog zinc in concentrate sales is projected at 160,000-180,000 tons for the year.
All of the company’s mines are currently operational. It completed the major expansion of the Elkview Operations plant in the June-end quarter. Construction activities at Quebrada QB2 are gradually and safely ramping up following the temporary suspension in March. The Neptune Bulk Terminals upgrade project is progressing in line with budget, with construction expected to be completed in first-quarter 2021. This project will secure a long-term, low-cost and reliable supply-chain solution for the steelmaking coal business unit.
The company’s shares have gained 24.7% over the past three months, compared to the industry’s growth of 28.8%.
Zacks Rank & Key Picks
Teck Resources currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the basic materials space include Equinox Gold Corp. EQX, Harmony Gold Mining Company Limited HMY and Northern Dynasty Minerals Ltd. NAK, each carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Equinox Gold has an expected earnings growth rate of 65.5% for 2020. The company’s shares have surged 96.8% in the past year.
Harmony Gold has an estimated earnings growth rate of 264.3% for fiscal 2020. Its shares have appreciated 154.4% in a year’s time.
Northern Dynasty has a projected earnings growth rate of 28.6% for the current year. The company’s shares have skyrocketed 285.5% over the past year.
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