Goldcorp Inc. (TSX:G)(NYSE:GG), one of world’s largest producers of gold, announced second-quarter earnings results before the market opened on July 30, and its stock responded by falling over 1% in the day’s trading session. The stock now sits more than 49% below its 52-week high of $32.32 reached back in August 2014, so let’s take a closer look at the results to determine if the stock is a turnaround play, or if we should avoid it indefinitely.
The results that sent its shares lower
Here’s a summary of Goldcorp’s second-quarter earnings results compared with its results in the same period a year ago. All figures are in U.S. dollars.
| Metric | Q2 2015 | Q2 2014 |
| Adjusted Earnings Per Share | $0.08 | $0.20 |
| Adjusted Revenue | $1.32 billion | $1.12 billion |
Source: Goldcorp Inc.
Goldcorp’s adjusted earnings per share decreased 60% and its adjusted revenue increased 18% compared with the second quarter of fiscal 2014. Its steep decline in earnings per share can be attributed to its adjusted net income decreasing 60.4% to $65 million, which the company noted was a result of “lower realized margins on gold and by-product metal sales…higher production costs…[and] higher depreciation and depletion expenses.”
Its very strong revenue growth can be attributed to its increased sales volumes, including its gold sales increasing 41.2% to 903,000 ounces and its silver sales increasing 10% to 10.79 million ounces, which more than offset the negative impact of its average realized gold price decreasing 8.3% to $1,189 per ounce and its average realized silver price decreasing 17.5% to $14 per ounce.
Here’s a quick breakdown of 14 other notable statistics from the report compared with the year-ago period:
- Gold production increased 40% to a record 908,000 ounces
- Silver production increased 6.4% to 10.43 million ounces
- Copper production decreased 55.4% to 8.6 million pounds
- Copper sold decreased 64.6% to 4.6 million pounds
- Average realized copper price decreased 21.2% to $2.67 per pound
- Lead production increased 23.1% to 47.5 million pounds
- Lead sold increased 11.6% to 48.2 million pounds
- Average realized lead price decreased 11.3% to $0.86 per pound
- Zinc production increased 14.8% to 105.5 million pounds
- Zinc sold increased 15.5% to 88.9 million pounds
- Average realized zinc price decreased 1% to $0.99 per pound
- Adjusted operating cash flows decreased 4.8% to $358 million
- Reported free cash flow of $174 million, compared to a cash use of $240 million in the year-ago period
- Weighted average number of shares outstanding increased 2.1% to 829.99 million
On a very sour note, Goldcorp went on to announce a 60% reduction to its monthly dividend to $0.02 per share, and this will be effective as of August 1.
Should you buy Goldcorp?
It was a solid quarter overall for Goldcorp, but its dividend reduction put a damper on the results, so I think the drop in its stock was warranted. With this being said, I think the stock represents a great long-term investment opportunity today because it trades at favourable forward valuations, including just 26.5 times fiscal 2016’s estimated earnings per share of $0.62, which is inexpensive given its five-year average price-to-earnings multiple of 28.5 and its long-term growth potential.
With all of the information provided above in mind, I think Goldcorp is one of the top turnaround plays in the gold industry today. Foolish investors should strongly consider beginning to scale in to long-term positions over the next couple of trading sessions.
