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Shell (RDS.A) Q2 Earnings Top Estimates on Trading Gains

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Europe’s largest oil company Royal Dutch Shell plc (RDS.A - Free Report) reported second-quarter earnings per ADS (on a current cost of supplies basis, excluding items - the market’s preferred measure) of 16 cents. The Zacks Consensus Estimate was of a loss of 31 cents. The outperformance reflects strong trading gains.

However, the bottom line compared unfavorably with the year-ago profit of 84 cents. The underperformance mainly stemmed from the coronavirus-induced commodity price collapse.

The Hague-based Shell reported revenues of $32.5 billion, which were 64.6% below second-quarter 2019 sales of $91.8 billion.

Royal Dutch Shell PLC Price, Consensus and EPS Surprise

Royal Dutch Shell PLC Price, Consensus and EPS Surprise

Royal Dutch Shell PLC price-consensus-eps-surprise-chart | Royal Dutch Shell PLC Quote

Operational Performance

Upstream: The segment incurred a loss of $1.5 billion (excluding items) against profit of $1.3 billion (adjusted) in the year-ago period. This primarily reflects the impact of sharply lower oil and gas prices.

At $24.31 per barrel, the group’s worldwide realized liquids prices were 60% below the year-earlier levels while natural gas prices were down 24%.

Shell’s upstream volumes averaged 2,415 thousand oil-equivalent barrels per day (MBOE/d), down 7% from the year-ago period due to curtailments on account of the coronavirus and the OPEC+ production cut agreement, together with asset sales and lower joint venture production. Liquids production totaled 1,609 thousand barrels per day (down 2% year over year), while natural gas output came in at 4,673 million standard cubic feet per day (down 17%).

Oil Products: In this segment, the Anglo-Dutch super-major reported adjusted income of $2.4 billion, 89% more than the year-ago period. The favorable comparison was due to a particularly strong contribution from trading and lower operating expenses, partly offset by coronavirus-hit sales volumes (down 39% year over year) and lower refining margins. Meanwhile, refinery utilization came in at 70%, down 6% from the June quarter of 2019.

Integrated Gas: The unit reported adjusted income of $362 million, down 79% from the $1.7 billion in April-June quarter of 2019. Results were primarily impacted by lower commodity prices and charge associated with well write-offs, partly offset by increase in trading contributions and lower operating expenses. Meanwhile, the total Integrated Gas production fell 2% year over year to 904 MBOE/d. On a further bearish note, LNG liquefaction volumes were down 3% from the second quarter of 2019 to 8.36 million tons.

Chemicals: The segment recorded a profit of $206 million (excluding items) during the quarter, up 56% from the $132 million (adjusted) achieved in the year-ago period. The positive comparison was due to lower operating expenses.

Financial Performance

As of Jun 30, 2020, the Zacks Rank #2 (Buy) company, which trimmed its payout for the first time since World War II earlier this year, had $27.9 billion in cash and $105 billion in debt (including short-term debt). Net debt-to-capitalization ratio was approximately 32.7%, up from 27.6% a year ago. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

During the quarter under review, Shell generated cash flow from operations of $2.6 billion, returned $1.2 billion to shareholders through dividends and spent $3.6 billion cash on capital projects.

The company’s cash flow from operations slumped 77% from the year-earlier level. Meanwhile, the group raked in a meager $243 million in free cash flow during the second quarter, plunging from $6.9 billion a year ago.

Guidance

Shell expects third-quarter 2020 upstream volumes of 2,100-2,400 MBOE/d, while Integrated Gas production is expected between 820 MBOE/d and 880 MBOE/d.

Earnings Schedules of Other Oil Supermajors

Among the major integrated players, ExxonMobil (XOM - Free Report) and Chevron (CVX - Free Report) are scheduled to release tomorrow, while continental rival BP plc (BP - Free Report) is set to report earnings on Tuesday.

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