Teck Resources (TSX:TECK.B) Fell 18% Last Week After a Disappointing Earnings Report

Teck Resources Ltd (TSX:TECK.B)(NYSE:TECK) fell more than 18% as of Friday following a disappointing third-quarter earnings report. Should you be concerned?

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Shares in B.C.-based metals and mining company Teck Resources (TSX:TECK.B)(NYSE:TECK) fell more than 18% as of Friday following a disappointing third-quarter earnings report.

Earnings missed analyst expectations by more than 13%, or $0.13 per share, on the back of weaker realized prices for its commodities.

Management attributed the underperformance to lower prices for all of its key products, including steel-making coal, copper, and zinc.

GAAP earnings were $1.3 billion ($2.23 per share) compared to $584 million in the year-ago period; however, it was adjusted earnings (normalized to exclude one-time variances) that disappointed, coming in at just $0.81 per share compared to $1.05 per share a year earlier.

EBITDA (earnings before interest, depreciation, taxes, and amortization) was $2.1 billion in the third quarter versus $1.4 billion in the third quarter of 2017; however, adjusted EBITDA was also lower, coming in at $1.2 billion compared to $1.4 billion a year ago.

Gross profit was also slightly lower in the third quarter as well, down from $1.1 billion in the third quarter of last year to $1 billion this year.

Meanwhile, there were also a couple of positives to take away from the earnings report.

Performance at its Fort Hills oil sands mine, which it co-owns with Suncor Energy, produced ahead of expectations and the company now expects full-year production to be towards the high end of its previous guidance.

It also announced that its finally received official regulatory approval for its Quebrada Blanca Phase 2 project in a unanimous vote from Chilean authorities.

Teck continues the search for a J.V. partner on the Quebrada project, and it maintains that it is looking to retain a 60-70% ownership in the project once a deal has been reached.

In July, it also completed the sale of its two-thirds interest in the Waneta Dam to BC Hydro for cash proceeds of $1.2 billion, recording a pre-tax gain of $888 million on the sale, and used the proceeds to re-purchase US$1 billion of its own outstanding near-term debt maturities.

Bottom line

This week’s volatility will, no question, be discouraging for Teck shareholders; however, on the bright side, it does look as though the company is learning from some of its past mistakes.

The move to retire its near-term debt maturities is a prudent one, and rationalizing its portfolio to focus capital investments on core assets only makes sense.

Meanwhile, the long-anticipated Fort Hills project with Suncor is recognized as one of the best assets in the region and represents a critical step towards reducing Teck’s exposure to volatile metals and mining prices.

Fool on.

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.

Fool contributor Jason Phillips has no position in any of the stocks mentioned.

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