Back to top

Image: Bigstock

Southern Copper (SCCO) to Post Q2 Earnings: What's in Store?

Read MoreHide Full Article

Southern Copper Corporation (SCCO - Free Report) is expected to deliver year-over-year improvement in both revenues and earnings when it reports second-quarter 2021 results.

Q1 Results

In the last reported quarter, Southern Copper’s earnings and sales not only beat the Zacks Consensus Estimate but also improved year over year owing to higher prices for copper, silver and zinc.

The company has beat earnings estimates in each of the trailing four quarters, the average surprise being 14.2%.

Q2 Estimates

The Zacks Consensus Estimate for second-quarter 2021 earnings per share is currently pegged at $1.09, suggesting an improvement of 220% from the prior-year quarter. The estimate has remained unchanged over the past 30 days. The consensus mark for the quarter’s revenues is pegged at $2.55 billion, suggesting year-over-year growth of 42.6%.

What the Zacks Model Unveils

Our proven model does not predict an earnings beat for Southern Copper this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. However, this is not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: The Earnings ESP for Southern Copper is -3.67%.

Zacks Rank: Southern Copper currently carries a Zacks Rank of 3.

Key Factors to Note

Copper represents more than 80% of the company’s sales. Over the past few quarters the company has been witnessing lower production at its Peruvian mines due to lower ore grades and this is expected to continue through 2022. Consequently, the second-quarter production numbers are likely to reflect this impact. This will, however, be somewhat offset by higher production at its Mexican mines and its Mexican underground operations (IMMSA unit) owing to higher production at the San Martin mine.

Overall silver production is likely to be lower on account of lesser production at Buenavista and IMMSA. Production of molybdenum, its main by-product, has been high due of rising production at the Peruvian mines, namely the Toquepala mine after throughput increased at the new Molybdenum plant, spurred by improvements in ore grades and recoveries at other operations. However, this might have been offset by lower production at Buenavista due to lower grades.

Copper prices have gained throughout the second quarter on the back of strong demand from China, while production has been declining in Chile, which is the top producer of the metal. The pickup in global industrial activity has been working in favor of the industrial metal. Average silver prices have been gaining on the back of increase in industrial activity. Zinc prices have gone up in the second quarter on the back of high demand from the steel sector. Higher metal prices might have contributed to the company’s top-line performance in the second quarter and offset the impact of lower production. Operating cash costs are expected to be higher in the to-be-reported quarter due to lower grades. This might get reflected on margins.

Share Price Performance

Zacks Investment Research
Image Source: Zacks Investment Research

The company’s shares have gained 41.9% over the past year compared with the industry’s rally of 73.9%.

Stocks to Consider

Here are some Basic Materials stocks, which you may consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases.

LyondellBasell Industries N.V. (LYB - Free Report) has an Earnings ESP of +15.10% and a Zacks Rank of 1, currently. You can see the complete list of today’s Zacks #1 Rank stocks here.

Celanese Corporation (CE - Free Report) has a Zacks Rank #2 and an Earnings ESP of +8.38%, at present.

FreeportMcMoRan Inc. (FCX - Free Report) , a Zacks #2 Ranked stock, has an Earnings ESP of +0.82%.