Goldcorp (NYSE:GG) recently reported quarterly earnings per share of $0.31, falling well short of analysts' consensus estimates of $0.38 and the $0.50 EPS the company earned in same period a year ago. Despite the miss, President and CEO Chuck Jeannes confirmed the company's full-year guidance, focusing on positive results, favorable growth prospects, and controlled costs. Goldcorp has faced the same pressures that have plagued the two top gold producers, Barrick Gold (NYSE:GOLD) and Newmont Mining (NYSE:NEM) – weakening gold prices and escalating costs. Ultimately, Jeannes believes the 12-year bull market remains intact, which, if true, makes recent weakness in the stock a buying opportunity.
A deeper look at the numbers
For the quarter, Goldcorp had revenues of $1.0 billion leading to net income of $253 million; this is a year-over-year decline from the $404 million earned in the first quarter of 2012. The company reported sales of 595,100 ounces with an all-in sustaining cost of $1,135 per ounce. The average price per ounce received by Goldcorp in the quarter was $1,622, a roughly 5% decline from the $1707 per ounce earned in the same quarter a year earlier. The company also reported $2 billion in cash and $4 billion in liquidity; the latter is an important part of Goldcorp's contingency plan should market condition worsen.
Market conditions and forward guidance
"I believe the long term fundamentals supporting a strong gold price remain firmly in place," Jeannes said of market conditions. He also explained recent weakness: "I believe what we're seeing as a mid-cycle correction as opposed to a start of a bear market." Acknowledging the need to address and weather market volatility, the CEO said that he was pleased with the first quarter's results and how it set up the rest of 2013.
On the earnings call, Goldcorp reiterated full-year guidance of 2.55 million ounces-2.8 million ounces; the annual all-in sustaining cost is still expected to come in between $1,000 and $1,100 per ounce. While currently planned expansion projects remain on track, the company emphasized the need for discipline and careful management. Controlling costs across grade qualities was also a theme of the discussion. Savings was also a theme of Yamana Gold's (NYSE:AUY) release earlier this week, with the firm targeting $150 per gold equivalent ounce in production cost reductions over the course of 2013.
Interpreting the data
While the miss dragged down shares upon the news release, there are a few important takeaways from both the operating results and the guidance. Goldcorp may have missed analysts' consensus expectations, but production grew as expected. This signals that the weaker than expected results were driven by the overall market – the same factors that weighed on Barrick and Newmont had a negative impact on Goldcorp.
The fact that Jeannes spoke favorably about the strength of the gold market is highlighted by solid guidance. In order to hit the full-year numbers after the miss, Goldcorp will need some strong quarters ahead. Given the extent of the miss, now would have been the time to lower expectations, if there were a reasonable basis to do so. The fact that guidance remained in place suggests that the company has legitimate reasons to believe that conditions will improve throughout 2013. Overall, current weakness may be a great buying opportunity and should not be overlooked.