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Shell (RDS.A) Q3 Earnings Top, Sales Slump, Dividend Raised

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Europe’s largest oil company Royal Dutch Shell plc reported third-quarter earnings per ADS (on a current cost of supplies basis, excluding items — the market’s preferred measure) of 24 cents. The Zacks Consensus Estimate was of a loss of 6 cents. The outperformance reflects strong retail gains.

However, the bottom line compared unfavorably with the year-ago profit of $1.18 per share. The underperformance mainly stemmed from the coronavirus-induced commodity price collapse and lower production.

The Hague-based Shell reported revenues of $44 billion, which were 49% below third-quarter 2019 sales of $86.6 billion.

On an encouraging note for investors, Royal Dutch Shell boosted its quarterly dividend by about 4% to 16.65 cents after cutting it by two-thirds earlier this year.

 

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 $884 million (excluding items) against profit of $833 million (adjusted) in the year-ago period. This primarily reflects the impact of sharply lower oil and gas prices as well as production decline.

At $37.92 per barrel, the group’s worldwide realized liquids prices were 32% below the year-earlier levels while natural gas prices were down 37%.

Shell’s upstream volumes averaged 2,203 thousand oil-equivalent barrels per day (MBOE/d), down 14% from the year-ago period due to the OPEC+ production cut agreement and hurricane-related production disruptions in the U.S. Gulf of Mexico. Liquids production totaled 1,520 thousand barrels per day (down 8% year over year), while natural gas output came in at 3,960 million standard cubic feet per day (down 24%).

Oil Products: In this segment, the Anglo-Dutch super-major reported adjusted income of $1.7 billion, 16% lower than the year-ago period. The unfavorable comparison was due to coronavirus-hit sales volumes (down 30% year over year) and lower refining margins, partly offset by a tight leash on operating expenses and robust retail profitability. Meanwhile,  refinery utilization came in at 65%, down 13% from the September quarter of 2019.

Integrated Gas: The unit reported adjusted income of $768 million, down 71% from $2.7 billion in the July-September quarter of 2019. Results were primarily impacted by lower commodity prices and a decrease in trading contributions, partly offset by lower operating expenses. Meanwhile, the total Integrated Gas production fell 12% year over year to 844 MBOE/d. On a further bearish note, LNG liquefaction volumes decreased 13% from the third quarter of 2019 to 7.80 million tons.

Chemicals: The segment recorded a profit of $227 million (excluding items) during the quarter, edging up 1% from the year-ago period as lower realized margins were offset by favorable deffered tax adjustments.

Financial Performance

As of Sep 30, 2020, the Zacks Rank #3 (Hold) company, which earlier trimmed its payout for the first time since World War II in April, had $35.7 billion in cash and $109.1 billion in debt (including short-term debt). Net debt-to-capitalization ratio was approximately 31.4%, up from 27.9% 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 $10.4 billion, returned $1.2 billion to its shareholders through dividends and spent $3.7 billion cash on capital projects.

The company’s cash flow from operations fell 15% from the year-earlier level. Meanwhile, the group raked in $76.billion in free cash flow during the third quarter, decreasing from $10.1 billion a year ago.

Guidance

Shell expects fourth-quarter 2020 upstream volumes of 2,300-2,500 MBOE/d, while Integrated Gas production is expected between 830 MBOE/d and 870 MBOE/d.

Earnings Schedules of Other Oil Supermajors

Among the big integrated players, ExxonMobil (XOM - Free Report) and Chevron (CVX - Free Report) are scheduled to release tomorrow, while continental rival BP plc (BP - Free Report) came up with better-than-expected bottom line numbers earlier this week.

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