A month has gone by since the last earnings report for Southern Copper (SCCO). Shares have lost about 11.9% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Southern Copper due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Southern Copper Q1 Earnings Lag Estimates, Plunge Y/Y
Southern Copper reported first-quarter 2019 earnings of 50 cents per share, missing the Zacks Consensus Estimate of 54 cents. The figure also declined 18% from the prior-year quarter.
Net sales came in at $1,753 million, exhibiting year-over-year decline of 4.8% and also lagged the Zacks Consensus Estimate of $1,854 million. Despite improvement in sales volume of copper, silver and zinc, lower metal prices dragged net sales down in the quarter under review.
Adjusted EBITDA declined 5% year over year to $890 million in the first quarter. Adjusted EBITDA margin was 50.8% compared with 51.0% in the prior-year quarter.
Copper: Southern Copper mined 228,629 tons of copper during the reported quarter, up 11.6% year over year due to higher production at all of its operations. In Mexico, copper production was 5.2% higher than the prior-year quarter thanks to operating improvements at the new Buenavista’s plants, SX/EW and concentrator. Production grew 24.3% in Peru aided by the successful initial ramping up of the new Toquepala concentrator.
Molybdenum: The company mined 5,145 tons of molybdenum during the first quarter, reflecting year-over-year drop of 0.6%. Lower production at the Toquepala mine as a result of lower grades and recoveries was partially offset by higher production at the Buenavista and Cuajone mines, leading to the overall decline in production.
Zinc: The company’s zinc production increased 4.6% year over year to 18,550 tons in the first quarter of 2019 driven by higher production at the Santa Eulalia mine.
Silver: Southern Copper’s silver production improved 5% year over year to 4,342,000 ounces. Higher production at Toquepala mine was partially offset by lower production at the Cuajone and La Caridad operations.
The company’s net cash from operating activities in the first quarter of 2019 was $371.3 million compared with $649.8 million in the prior-year quarter. Cash flow was impacted in the reported quarter owing to higher annual payments of profit sharing to the company’s Peruvian work force as well as taxes in Mexico and Peru. Working capital was also higher due to higher copper concentrate sales from the new Toquepala concentrator.
Cash and cash equivalents went down to $737 million at the end of the first quarter of 2019 from $844.6 million at the end of 2018. Long-term debt increased to $5,961 million at the first-quarter 2019 end from $5,960 million at the end of the 2018. In the first quarter of 2019, capital investments were $173 million.
Aided by the Toquepala concentrator, which will achieve maximum capacity by mid-May, and recovery of production of the San Martin mine, the company expects production increases of 12.5% in copper, 36% in zinc, 24% in silver, and 15% in molybdenum in 2019. Based on 2018 average prices, this translates to incremental sales of more than $800 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.59% due to these changes.
At this time, Southern Copper has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Southern Copper has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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