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Shell (RDS.A) Gears Up for Q2 Earnings: What's in Store?

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Royal Dutch Shell PLC (RDS.A - Free Report) is set to report second-quarter 2021 results on Thursday Jul 29, before the opening bell.

The Zacks Consensus Estimate for earnings is pegged at $1.22 for the to-be-reported quarter.

Against this backdrop, let’s delve into the factors that might have impacted the company’s June-quarter performance.

Key Q2 Predictions

Shell recently released a preliminary report for the April-June period wherein it vowed to keep a tight lid on capital expenditures as it aims to spend less than $22 billion for the year. The performance of Anglo-Dutch firm’s trading division, which was instrumental in helping it partly cushion the impact of the coronavirus-induced oil price slump, is likely to be “significantly below average” for the Integrated Gas division and “average” for the Oil Products business.

Management further expects lower debt load for the second quarter though the quantum of reduction could be partly offset by changes in working capital. 

Upstream

According to the firm’s preliminary update, Shell’s upstream production fell 6.3% on a year-over-year basis in the second quarter of 2021 at the midpoint of the guided range. The supermajor is estimating its output in the range of 2,225-2,300 thousand barrels of oil-equivalent per day (MBOE/d), indicating a decline from the year-ago quarter’s reported figure of 2,415 MBOE/d. Currency fluctuations are expected to impact earnings positively but the same may get offset by higher operating expenses due to increased planned maintenance activities. Tax charges are expected to hurt earnings in the range of $500-900 million.

Integrated Gas

Shell’s LNG liquefaction volumes are expected in the range of 7.1-7.7 million tons, indicating a decline of 11.5%from the year-ago quarter’s reported figure. The decrease can be blamed on additional unplanned maintenance activities. However, Shell’s integrated gas production is expected to increase to the range of 900,000 to 960,000 barrels of oil-equivalent per day (BOE/d) from the year-ago quarter’s reported figure. The metric was 904,000 BOE/d in the second quarter of 2020.

Oil Products

The company’s oil product sales are expected to increase to the band of 45 million barrels per day. Refinery utilization is estimated between 75% and 79%, suggesting growth from the year-ago period’s reported level of 70%. Marketing margins are expected to be higher sequentially owing to strong retail margins.

Chemicals

Chemical sales are projected to surge to the bracket of 3.5-3.8 million tons while margins are likely to be flat with the first-quarter 2021 reading. Manufacturing plant availability is expected between 81% and 85%, implying a rise from 78% reported in the corresponding period of 2020.

What Does Our Model Say?

Our proven Zacks model predicts an earnings beat for Shell this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP:  Shell has an Earnings ESP of +10.55%.

Zacks Rank:  Shell currently has a Zacks Rank #3, which increases the predictive power of ESP.

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

Highlights of Q1 Earnings & Surprise History

Europe’s largest oil company Shell reported first-quarter earnings per ADS (on a current cost of supplies basis excluding items, signifying the market’s preferred measure) of 82 cents. The bottom line came ahead of the Zacks Consensus Estimate of 79 cents and improved from the year-ago profit of 74 cents per ADS.

This outperformance was mainly backed by solid commodity prices and robust chemical margins.

On the flip side, this Hague-based company’s revenues grossed $59.1 billion, down 3% from first-quarter 2020 sales of $61 billion on lower production and oil products sales volumes.

As far as its earnings surprises are concerned, the company’s bottom line trumped the Zacks Consensus Estimate in three of the trailing four quarters and missed the mark in the remaining period, the average surprise being 153.56%. This is depicted in the graph below:

Royal Dutch Shell PLC Price and EPS Surprise

Royal Dutch Shell PLC Price and EPS Surprise

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

Other Stocks to Consider

Some other firms worth considering from the  energy  space on the basis of our model that shows that these too have the right combination of elements to beat on earnings this season are as follows:

Ovintiv Inc.  (OVV - Free Report) has an Earnings ESP of +14.49% and a Zacks Rank of 1, currently. The firm is scheduled to release earnings on Jul 27.

Murphy USA Inc. (MUSA - Free Report) has an Earnings ESP of +12.58% and is Zacks #3 Ranked at present. The firm is scheduled to release earnings on Jul 28.

Magellan Midstream Partners, L.P. (MMP - Free Report) has an Earnings ESP of +2.32% and is a #3 Ranked player, presently. The firm is scheduled to release earnings on Jul 29.