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Teck Resources' (TECK) Q3 Earnings Beat Estimates, Shares Up

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Zacks Equity Research
·5 min read
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Teck Resources Ltd’s TECK shares have gained 2.1% since the company reported better-than-expected earnings results in third-quarter 2020. The company’s adjusted earnings per share came in at 18 cents in the quarter, beating the Zacks Consensus Estimate of 17 cents. The bottom line, however, tanked 67% year on year due to costs related to the suspension of the Quebrada Blanca Phase 2 (QB2) project.

Including one-time items, the company delivered earnings per share of 8 cents compared with the 50 cents recorded in the prior-year quarter.

Net sales of C$2,291 million ($1,720 million) for the quarter declined 25.2% year over year on the declines witnessed in steelmaking coal. The top line also missed the Zacks Consensus Estimate of $1,753 million.

Gross profit, before depreciation and amortization, plummeted 43% year over year to C$703 million ($529 million). Gross margin came in at 30.7% compared with the year-ago quarter’s 40.3%. Adjusted EBITDA was C$638 million ($479.7 million), significantly down 40.5% from the prior-year quarter. EBITDA margin came in at 27.9% in the third quarter compared with the year-earlier quarter’s 35.1%.

Segment Performance

The Steelmaking Coal segment reported sales of C$699 million ($526) million, reflecting a year-over-year plunge of 45.7%. The segment reported an operating loss of C$98 million ($74 million) as against the operating profit of C$402 million ($305 million) witnessed in the prior-year quarter.

Copper segment’s net sales were up 3% year over year to C$624 million ($469 million) in the September-end quarter. The segment’s operating profit came in at C$128 million ($96 million) in the reported quarter, marking a year-over-year jump of 65%.

The Zinc segment’s net sales declined 2.4% year over year to C$874 million ($657 million) during the third quarter. The segment’s operating profit dropped 5.3% year over year to C$177 million ($133 million) during this period.

The Energy segment’s net sales slumped 63.4%, year on year, to C$94 million ($71 million) in the third quarter. The segment reported an operating loss of C$59 million ($44 million) in the July-September quarter, as against the prior-year quarter’s profit of C$3 million ($2.3 million).

Financials

Teck Resources had cash and cash equivalents of C$403 million ($303 million) as of Sep 30, 2020, compared with C$1,619 million ($1,227 million) as of Sep 30, 2019. Long-term debt was C$5,778 million ($4,344 million) at the end of the third quarter compared with C$4,133 million ($3188.6 million) as of Dec 31, 2019. Cash provided by operating activities decreased to C$969 million ($729 million) in the first nine months of 2020 from the C$2,702 million ($2,047 million) seen in the comparable period last year.

Guidance

Teck Resources has lowered the 2020 copper production guidance, and reaffirmed the production estimate for other segments. 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 $270 million in operating-cost reductions and $550 million in capital-cost reductions.

Teck Resources expects steelmaking coal production between 11 million tons and 12 million tons for the second half of the year. For the current quarter, sales volume is projected at 5.8-6.2 million tons for the Steelmaking Coal segment.

Copper production in the second half of 2020 is expected within 140,000-155,000, down from the prior guided range of 145,000 tons to 160,000 tons. Zinc production for the second half (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 period between 3.6 million barrels and 4.4 million barrels per day.

Price Performance

The company’s shares have gained 50% over the past six months, outperforming the industry’s growth of 26.7%.



Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the basic materials space are Fortuna Silver Mines Inc. FSM, Barrick Gold GOLD and Newmont Corporation NEM, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Fortuna Silver Mines has an expected earnings growth rate of 5.9% for 2020. The company’s shares have surged 31% year to date.

Barrick Gold has a projected earnings growth rate of 100% for the current year. The stock has gained 46% in the year-to-date period.

Newmont has an estimated earnings growth rate of 91% for the ongoing year. Shares of the company have appreciated 42% so far this year.

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