Tahoe Resources, Inc. :TAHO-US: Earnings Analysis: Q3, 2017 By the Numbers : January 8, 2018

Tahoe Resources, Inc. reports financial results for the quarter ended September 30, 2017.

Highlights

  • Summary numbers: Revenues of USD 155.20 million, Net Earnings of USD -8.38 million.
  • Gross margins narrowed from 45.55% to 8.63% compared to the same period last year, operating (EBITDA) margins now 22.82% from 54.28%.
  • Change in operating cash flow of -24.04% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-09-30 2017-06-30 2017-03-31 2016-12-31 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 155.2 209.58 251.05 189.4 234.72
Revenue Growth (%YOY) -33.88 -8.18 89.99 22.28 61.06
Earnings (mil) -8.38 33.49 74.7 0.32 63.01
Earnings Growth (%YOY) -113.3 100.02 97.57 100.29 375.38
Net Margin (%) -5.4 15.98 29.75 0.17 26.85
EPS -0.03 0.11 0.24 0 0.2
Return on Equity (%) -0.32 1.27 2.87 0.01 2.46
Return on Assets (%) -1.07 4.31 9.69 0.04 8.38

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, TAHO-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if TAHO-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by -25.95% and earnings by -125.02% compared to the previous period.

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 45.55% to 8.63%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 54.28% to 22.82% in this time frame. For comparison, gross margins were 31.19% and EBITDA margins were 46.57% in the previous period.

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

TAHO-US’s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 116.21 days, compared to last year’s level of 62.83 days.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

TAHO-US’s year-on-year change in operating cash flow of -24.04% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 42.39% to 1.69% and (2) one-time items that contributed to a decrease in pretax margins from 40.45% to 0.32%

EBIT Margin History
PreTax Margin History

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Company Profile

Tahoe Resources Inc. engages in the exploration, development, operation, and acquisition of mineral properties for the mining of precious metals in the Americas. It also produces silver, gold, lead, and zinc from mines locates in Guatemala, Peru, and Canada. It operates through the following segments: Escobal, La Arena, Shahuindo, and Timmins Mines. The Escobal segment focuses on silver mining operation located in southeastern Guatemala. The La Arena, and Shahuindo segments covers gold mining operations located in northwestern Peru. The Timmins Mines segment consists of gold mining operation located in Northeastern Ontario, Canada. The company was founded by C. Kevin McArthur on November 10, 2009 and is headquartered in Reno, NV.

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