The Motley Fool

Teck Resources Beats Estimates – Cutting its Way to Glory

Canada’s largest diversified miner, Teck Resources (TSX:TCK.B, NYSE:TCK), joined the second quarter earnings parade on Thursday.  Better than expected results had the stock trading as much as 4% higher earlier in the day.

Although adjusted EPS for the quarter came through at $0.34, beating the consensus estimate of $0.31/share, the company carried a cautious tone as cost cuts and production management were emphasized.

Cap ex guidance in 2013 has been lowered from $2 billion to $1.85 billion and a cost-cutting initiative that was scheduled to amount to $250 million in savings has been nudged up to $300 million.  $220 million in cost savings have been achieved thus far and another $80 million is on the table.

For somebody that has trouble cutting $30 out of his monthly budget, this seems like a pretty impressive accomplishment.

The reason for this conservative tone is that Teck’s primary business, coal production, has been under pressure.  Of the company’s $2.2 billion in quarterly revenues, $1 billion was generated from its coal division and because of slumping global demand for steel, the economics of coal are currently rather tight.

Thus far in Q3 Teck has been selling its coal for $143/tonne.  The company provided guidance that indicated it costs them between $113 and $128/tonne to produce this coal.  That doesn’t leave much room for error and provides an indication as to why that extra $50 million in cost savings initiatives might come in handy should coal prices continue to slide.

Foolish Takeaway

Teck and its resource related peers have created a significant drag on the Canadian market thus far in 2013.  Because of their heavy-weights in the S&P/TSX Composite, Canadians that are index oriented investors aren’t as well-diversified as they may think.

We have prepared a Special FREE Report that will clue you into the perils of passively investing in the Canadian index and suggests an easy to implement alternative strategy.  The report is called “5 Stocks That Should Replace Your Canadian Index Fund”.  One of these 5 is in the process of being taken over at a huge premium.  Find out who the remaining 4 are simply by clicking here.

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool Canada’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Iain Butler is short $26 August put options in Teck and owns Teck shares outright.  The Motley Fool doesn’t own shares in any of the companies mentioned.   

5 Canadian Growth Stocks Under $5

We are giving away a FREE copy of our "5 Small-Cap Canadian Growth Stocks Under $5" report. These are 5 Canadian stocks that we think are screaming buys today.

Get Your Free Report Today

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.