A month has gone by since the last earnings report for Teck Resources Ltd (TECK). Shares have added about 12.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Teck Resources Ltd due for a pullback? 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 drivers.
Teck Resources Q1 Earnings Beat Estimates, Up Y/Y
Teck Resources reported first-quarter 2021 adjusted earnings per share of 48 cents, which beat the Zacks Consensus Estimate of 43 cents. The bottom line also improved from earnings of 13 cents in the prior-year quarter courtesy of higher prices of its principal products, most significantly copper, zinc and blended bitumen.
Including one-time items, the company reported earnings per share of 45 cents against a loss of $43 cents in the prior-year quarter.
Net sales were $2,006 million, which increased 13% year over year. However, the top line missed the Zacks Consensus Estimate of $2,050 million. Steelmaking coal sales volumes improved 9% year over year to 6.2 million tons and was within the company’s guidance range. Of this, sales to China accounted for approximately 2 million tons. This was according to the company’s plan to increase sales to China in a bid to capitalize on the increase in demand due to restrictions on Australian coal imports. The company reported decrease in sales volumes of copper, zinc and blended bitumen. However, the impact was offset by higher copper, zinc and blended bitumen prices in the quarter.
Gross profit, before depreciation and amortization, inched up 1% year over year to $1,491 million. Gross margin came in at 25.7% compared with the year-ago quarter’s 16.7%. Adjusted EBITDA was $761 million, up 68% from the prior-year quarter. EBITDA margin came in at 38% in the first quarter compared with the year-earlier quarter’s 26%.
The Steelmaking Coal segment reported sales of $824 million, reflecting year-over-year growth of 8%. The segment reported an operating profit of $140 million compared with an operating profit of $204 in the prior-year quarter. This can be attributed to increased sales volumes and lower operating costs.
Copper segment’s net sales were up 42% year over year to $604 million in the March-end quarter. The segment’s operating profit was $232 million in the reported quarter, reflecting a turnaround from the operating loss of $5 million in the prior-year quarter. This was driven by substantially higher copper prices, which were partially offset by higher unit operating costs and lower copper sales volumes.
The Zinc segment’s net sales inched down 1% year over year to $449 million during the reported quarter. The segment’s operating profit climbed 18% year over year to $92 million during this period. Substantially higher zinc prices were somewhat offset by lower sales volumes and higher unit operating costs and royalty expense.
The Energy segment’s net sales declined 2% year over year to $128 million in the first quarter. The segment reported an operating loss of $37 million compared with the prior-year quarter’s loss of $582 million. This was due to increase in global benchmark crude oil prices, including Western Canadian Select (WCS), partially offset by higher unit operating costs due to lower production.
Teck Resources generated cash flow of $461 million from operating activities in the first quarter of 2021 compared with $208 million in the prior-year quarter. The company had cash and cash equivalents of $294 million as of Mar 31, 2021, compared with $354 million as of Dec 31, 2020. Total debt was $5,328 million at the end of the first quarter compared with $4,914 million as of Dec 31, 2020.
The company crossed the half-way mark at its flagship QB2 copper growth project in April. First production continues to be expected in the second half of 2022. The Neptune port upgrade is now in the commissioning phase and ramp-up will continue as planned. So far 18 vessels have been loaded using the new outbound system.
Teck Resources expects steelmaking coal production between 25.5 million tons and 26.5 million tons in 2021. Copper production is anticipated within 275,000-290,000 tons. Zinc production is projected between 585,000 tons and 610,000 tons. The company estimates Bitumen production for 2021 between 8.6 million barrels and 12.1 million barrels.
For the second quarter, at Red Dog, the company expects sales of zinc in concentrate to be 35,000-45,000 tons. Zinc sales are expected to be lower than normal in the second quarter owing to reduced production in 2020 due to maintenance and water-related challenges. This resulted in lower concentrate shipments during 2020 and subsequently led to lower offsite zinc inventory available for sale. In the second half of 2021, the company expects sales of zinc in concentrate to be in line with the normal seasonal pattern of Red Dog sales.
Steelmaking coal sales is projected to be 6.0-6.4 million ton for the second quarter of 2021. The company will continue to prioritize available spot sales to China. The sales to Chinese customers are priced at the CFR China price assessments, which are higher than FOB Australia price assessments, thereby boosting its overall realized price.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
At this time, Teck Resources Ltd has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. 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 these revisions indicates a downward shift. Notably, Teck Resources Ltd has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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