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Teck Resources (TECK) Misses on Q1 Earnings, Withdraws '20 View

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Zacks Equity Research
·5 min read
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Teck Resources Ltd TECK reported adjusted earnings of 13 cents per share in first-quarter 2020, missing the Zacks Consensus Estimate of 15 cents. The bottom line also declined 83% from the year-ago quarter. The COVID-19 pandemic has led to significant reductions in the commodity prices, which impacted earnings performance in the quarter. Further, the underperformance can be attributed to dismal performance in the energy business unit thanks to material decline in global benchmark crude oil prices.

Including one-time items, the company reported a loss per share of 43 cents against earnings per share of 83 cents in the prior-year quarter.

Net sales of C$2,377 million ($1,774 million) for the quarter declined 24% year over year driven by declines across all segments. However, the top line surpassed the Zacks Consensus Estimate of $1,721 million.

Gross profit, before depreciation and amortization, plunged 62% year over year to C$398 million ($297 million), as a result of the significant decrease in prices for the company’s principal products. Gross margin came in at 16.7% compared with the year-ago quarter’s 33.5%. Adjusted EBITDA was C$608 million ($454 million), down 55% from the prior-year quarter. EBITDA margin was 25.6% in the quarter compared with the year-earlier quarter’s 43.8%.

Teck Resources Ltd Price, Consensus and EPS Surprise

Teck Resources Ltd Price, Consensus and EPS Surprise
Teck Resources Ltd Price, Consensus and EPS Surprise

Teck Resources Ltd price-consensus-eps-surprise-chart | Teck Resources Ltd Quote

Segment Performance

The Steelmaking Coal segment reported sales of C$1,023 million ($763) million, reflecting a year-over-year plunge of 34%. Operating profit tanked 62% year over year to C$270 million ($201 million).

The Copper segment’s net sales fell 10% year over year to C$570 million ($425 million) in the March-end quarter. The segment’s operating profit came in at C$7million ($5 million) in the reported quarter, a plunge of 96% from the prior-year quarter.

The Zinc segment’s net sales declined 15% year over year to C$608 million ($454 million) in the first quarter. The segment’s operating profit plummeted 36% year over year to C$104 million ($77.6 million) during this period.

The Energy segment’s net sales declined 17.6%, year on year, to C$176 million ($131 million) in first-quarter 2020. The segment reported an operating loss of C$775 million ($578 million) in first-quarter 2020, much wider than the prior-year quarter’s loss of C$13 million ($9.8 million).

Financials

The company had cash and cash equivalents of C$219 million ($155 million) at the end of the first quarter of 2020 compared with C$1,026 million ($789 million) at the end of 2019. Long-term debt was C$4,576 million ($3,248 million) at the first quarter-end, compared with C$4,133 million ($3178 million) as of Dec 31, 2019. Cash provided by operating activities decreased to C$279 million ($209 million) in first-quarter 2020 from the prior-year quarter’s C$520 million ($391 million).

Guidance

Global economic uncertainty and COVID-19 significantly impacted commodity prices. The extent and duration of impact that the pandemic may have on demand and commodity prices, suppliers and global financial markets cannot be ascertained at this time. Consequently, the company has suspended its previously issued 2020 annual guidance.

In this scenario, the company has intensified focus on cost reduction program and increased its target under cost reduction program to $1 billion. Since the commencement of the program in the fourth quarter of 2019, the company has so far achieved $375 million.

Initiatives to Counter COVID-19

The company has been implementing comprehensive safety measures at all sites. It has reduced crew sizes at some of the sites, resulting in lower production. Teck Resources has temporarily suspended construction activities on the QB2 project and operations at Antamina. It has reduced Fort Hills to a single-train facility resulting in lower production of bitumen.

In April, the company announced the creation of a $20 million fund to support COVID-19 response and future recovery efforts. Funding will support a range of critical initiatives, including procuring one million KN95 masks to be donated for healthcare in British Columbia, donations to healthcare facilities in Chile, a community investment fund for local organizations in areas where it operates, and donations to international relief efforts.

Price Performance

The company’s shares have lost 71.3% over the past year, compared with the industry’s decline of 21.4%.

Zacks Rank & Key Picks

Teck Resources currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Kinross Gold Corporation KGC, The Scotts Miracle-Gro Company SMG and Novagold Resources Inc. NG. While Kinross Gold and Scotts-Miracle-Gro sport a Zacks Rank #1 (Strong Buy), Novagold Resources carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinross Gold has a projected earnings growth rate of 41.2% for the current year. The company’s shares have rallied 97% over the past year.

Scotts Miracle-Gro has an estimated earnings growth rate of 15.9% for fiscal 2020. Its shares have appreciated 41% in the past year.

Novagold Resources has an expected earnings growth rate of 11.1% for fiscal 2020. The company’s shares have soared 183% in a year’s time.

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