Southern Copper (SCCO) Q3 Earnings & Revenues Miss Estimates
Southern Copper Corporation SCCO reported third-quarter 2018 net income of $369 million or 48 cents per share, missing the Zacks Consensus Estimate of 52 cents. The figure also lagged net income of $402 million or 52 cents recorded a year ago. This result can be attributed to lower metal prices and a higher non-cash tax provision for the reported quarter.
Net sales came in at $1,724 million, lagging the Zacks Consensus Estimate of $1,804 million. However, the figure went up 3% year over year. This can be attributed to higher sales volume of copper, molybdenum zinc, silver and higher molybdenum prices. However, these benefits were somewhat negated by lower prices for copper, silver and zinc.
Adjusted EBITDA inched up 0.6% year over year to $868 million in the third quarter. Adjusted EBITDA margin was 50.4% compared with 51.5% in the prior-year quarter.
Southern Copper Corporation Price, Consensus and EPS Surprise
Southern Copper Corporation price-consensus-eps-surprise-chart | Southern Copper Corporation Quote
Copper: Southern Copper produced 223,921 tons of copper during the reported quarter, up 1.1% year over year. This was driven by higher production at Peruvian operations of Toquepala and Cuajone as a result of higher ore grades at both mines. This was partially offset by lower production at the Buenavista operations due to lower grade and throughput at its SX-EW facilities.
Molybdenum: The company mined 5,759 tons of molybdenum during the reported quarter, a year-over-year increase of 7%. Higher production at Buenavista as a result of higher production at the new concentrator, and at Toquepalaas on the back better ore grade led to higher production in the quarter.
Zinc: The company’s zinc production went down 5% year over year to 17,469 tons in the third quarter of 2018.
Silver: Southern Copper’s silver production improved 1.4% year over year to 4,231,000 ounces in the reported quarter led by higher production at Toquepala mine resulting from higher grades.
The company’s net cash from operating activities in the first nine-month period of 2018 increased to $1,789 million from $1,280 million in the prior-year comparable period. This improvement can be attributed to strong cash generation from operations due to higher metal prices through the period and cost control efficiencies.
Cash and cash equivalents rose to $967 million at the end of the third quarter from $799 million at the end of the prior-year quarter. Long-term debt increased to $5,959 million at the end of the third quarter from $5,956 million at the end of the prior-year quarter.
In the first nine-month period of 2018, capital investments were $832 million compared with $710.4 million in the prior-year comparable period. This includes $329 million for the Toquepala expansion. The company has started the ramping up process of the Toquepala expansion project in Peru. The project is expected to add 100,000 tons to the company’s annual copper production capacity, allowing it to attain 1 million tons of production. The new concentrator is expected to produce 14,000 tons of copper in 2018 and approximately 100,000 tons annually thereafter.
On Oct 18, 2018, Southern Copper’s Board of Directors authorized a dividend of 40 cents per share. The dividend will be paid on Nov 21, 2018, to shareholders of record at the close of business on Nov 7, 2018.
In 2019, the company expects to reach full capacity at its new Toquepala concentrator and recover production at the San Martin mine. Consequently, the company expects an increase of 13% in production of copper, 38% in zinc, 31% in silver and 21% in molybdenum in 2019 compared with the 2017 levels. At the average prices of the third quarter, these production enhancements would represent sales accretion of more than $800 million.
The recent dip in copper prices was owing to market concerns due to the ongoing tension between the United States and China, and a stronger U.S. dollar. The company remains positive about the long-term fundamentals of the copper and expects a strong recovery in market prices driven by an expected market deficit for 2019 and beyond.
Shares of Southern Copper have fallen 16% in the past year compared with the industry’s decline of 19%.
Southern Copper currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the basic materials space are Methanex Corporation MEOH, CF Industries Holdings, Inc. CF and KMG Chemicals, Inc. KMG. While Methanex and CF Industries sport a Zacks Rank #1 (Strong Buy), KMG Chemicals carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Methanex has expected long-term earnings growth rate of 15%. Its shares have surged 26% in the past year.
CF Industries has expected long-term earnings growth rate of 6%. Its shares have gained 20% in a year.
KMG Chemicals has expected long-term earnings growth rate of 28.5%. Its shares have rallied 36% in the past year.
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