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Southern Copper (SCCO) Q1 Earnings Lag Estimates, Plunge Y/Y

Zacks Equity Research

Southern Copper Corporation SCCO 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%. 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.

Southern Copper Corporation Price, Consensus and EPS Surprise

 

Southern Copper Corporation Price, Consensus and EPS Surprise

Southern Copper Corporation price-consensus-eps-surprise-chart | Southern Copper Corporation Quote

Operating Highlights

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.

Financials
 
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.

Price Performance

Shares of Southern Copper have fallen 26.4% in the past year, compared with the industry’s decline of 20.7%.

Zacks Rank & Stocks to Consider

Southern Copper currently sports a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

Other top-ranked stocks in the basic materials space are Sandstorm Gold Ltd SAND, Arconic Inc. ARNC and Arch Coal Inc. ARCH. While Sandstorm Gold sports a Zacks Rank #1, Arconic and Arch Coal carry a Zacks Rank #2 (Buy).

Sandstorm Gold has an expected earnings growth rate of 189% for 2019. The company’s shares have gained 13.6% in the past year.

Arconic has an expected earnings growth rate of 3.5% for the current year. The company’s shares have appreciated 16.2% in a year’s time.

Arch Coal has an expected earnings growth rate of 5.49% for 2019. Its shares have surged 23.3% in a year’s time.

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