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Southern Copper (SCCO) Q2 Earnings & Revenues Miss Estimates

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Southern Copper Corporation (SCCO - Free Report) reported net income of $410 million or 53 cents per share for the second quarter of 2018, compared with net income of $300 million or 39 cents a year ago driven by higher sales and the company’s cost control initiatives. However, earnings missed the Zacks Consensus Estimate of 62 cents.
 
Net sales came in at $1,837 million, missing the Zacks Consensus Estimate of $1,872 million. However, the figure went up 20% year over year. This can be attributed to higher sales volume of zinc and silver, which were negated by lower sales of copper and molybdenum.
 
Adjusted EBITDA was at $955.2 million in the second quarter, 35.0% higher year over year. Adjusted EBITDA margin was 52.0% compared with 46.2% in the prior-year quarter.
 
Southern Copper Corporation Price, Consensus and EPS Surprise
Copper: Southern Copper produced 219,962 tons of copper during the quarter, up 2% 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 which was partially offset by lower production at the company’s Mexican operations
 
Molybdenum: The comapny sold 5,395 tons of molybdenum during the quarter, declining 0.1% year over year.
 
Zinc: The company’s zinc sales went up 0.9% year over year to 17,983 tons in the second quarter.
 
Silver: Southern Copper’s silver production improved 16% year over year to 4,635,000 ounces in the reported quarter.
 
Financials
 
The company’s net cash from operating activities in the first half of 2018 increased to $1,056 million from $844 million in the prior-year comparable period, due to higher metal prices and cost control efficiencies.
 
Cash and cash equivalents rose to $1,033 million at the end of second-quarter 2018 from $689 million at the end of the prior-year quarter. Long-term debt increased to $5,958 million at the end of second-quarter 2018 from $5,956 million at the end of the prior-year quarter.
 
In the first six-month period of 2018, capital investments were $562 million which includes $168 million for the Toquepala expansion. Its expansion is on track and budget, and expected to initiate operations in the third-quarter 2018. It is anticipated to produce 20,000 tons of copper in 2018 and 100,000 tons in the following years.
 
On Jul 19, 2018, Southern Copper’s Board of Directors authorized a dividend of 40 cents per share. The dividend will be paid on Aug 21, 2018, to shareholders of record at the close of business on Aug 8, 2018.
 
Update on Michiquillay acquisition
 
On Jun 12, 2018, Southern Copper inked a deal and made an initial payment of $12.5 million for the acquisition of the Michiquillay project in Cajamarca, Peru.
 
Michiquillay is a world class mining project with mineral resources of 1,150 million tons and a copper grade of 0.63%, it will produce 225,000 tons of copper per year (along with such by-products as molybdenum, gold and silver). It will fortify Southern Copper´s position as a low-cost producer.
 
Outlook
 
The recent dip in copper prices was owing to market concerns regarding a possible trade war between the United States and China as well as 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 in the coming months.
 
 
Shares of Southern Copper have moved up 25% in the last year, outperforming the industry’s growth of 6%. The company continues to witness the benefits of cost-reduction programs and expansion actions. Backed by a positive current market outlook as well as its constant commitment to increasing low-cost production and growth investments, Southern Copper is uniquely positioned to continue delivering enhanced performance.
 
Southern Copper currently carries a Zacks Rank #3 (Hold). 
 
Better-ranked stocks in the same industry include KapStone Paper and Packaging Corporation , Ingevity Corporation (NGVT - Free Report) and BHP Billiton Limited (BHP - Free Report) . KapStone Paper and Ingevity sport a Zacks Rank #1 (Strong buy), while BHP Billiton carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
 
KapStone Paper has a long-term earnings growth rate of 14%. The company’s shares have appreciated 52% over the past year.
 
Ingevity has a long-term earnings growth rate of 12%. Its shares have rallied 69% in the past year.
 
BHP Billiton has a long-term earnings growth rate of 5%. The stock has gained around 27% in a year’s time.
 
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