Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras (PBR Quick QuotePBR - Free Report) announced second-quarter earnings per ADS of 90 cents, missing the Zacks Consensus Estimate of 97 cents. Earnings also came in well below the year-ago profit of $1.39.

The underperformance can be attributed to lower oil prices and production that resulted in weak upstream results, plus rising pre-salt lifting costs.

Recurring net income, which strips one-time items, came in at $5,834 million compared to $9,101 million a year earlier. Petrobras’ adjusted EBITDA fell to $11,436 million from $19,943 million a year ago.

The company reported revenues of $22,979 million, which decreased 33.8% from the year-earlier sales of $34,703 million and came below the Zacks Consensus Estimate of $23,134 million.

In some important news for investors, Petrobras plans to pay RMB 15 billion or roughly $3 billion in total quarterly payouts. While the dividend is some 39% lower than the first-quarter payout, it's better than what investors thought they would be getting under the new management.  
 

Coming back to earnings, let's take a deeper look at the recent performances of PBR’s two main segments: Upstream (Exploration & Production) and Downstream (or Refining, Transportation and Marketing).

Upstream: The Rio de Janeiro-headquartered company’s average oil and gas production during the second quarter reached 2,637 thousand barrels of oil equivalent per day (MBOE/d) — 80% liquids — down from 2,653 MBOE/d in the same period of 2022.

Compared with the year-ago quarter, Brazilian oil and natural gas production — constituting approximately 99% of the total output — edged down 0.5% to 2,603 MBOE/d. The slight downside was blamed on divestments, losses from shutdowns and maintenance, to go with natural field decline.

In the April-to-June period, the average sales price of oil (or the average Brent crude price) dropped 31.1% from the year-earlier period to $78.39 per barrel. The decrease in crude prices, together with the dip in production, thereby had a major negative effect on upstream unit sales. Overall, the segment’s revenues fell to $14,722 million in the quarter under review from $21,940 million in the year-ago period.

As far as the bottom line is concerned, an uptick in pre-salt lifting costs (which rose 11.3% from the year-ago period to $5.71 per barrel) meant that the upstream unit recorded a net income of $5,335 million, down 50.6% from second-quarter 2022 earnings of $10,803 million.

Downstream (or Refining, Transportation and Marketing): Revenues from the segment totaled $21,057 million, 34.1% lower than the year-ago figure of $31,956 million on lower sales realizations. Petrobras' downstream unit came up with a profit of $312 million, which compared unfavorably with earnings of $2,761 million in the second quarter of 2022. The dip was on account of a sharp drop in oil product prices, plunging international diesel crack spreads and higher unit refining cost.

Costs

During the period, Petrobras’ sales, general and administrative expenses were $1,588 million, 1.1% higher than the year-ago period. Meanwhile, selling expenses fell from $1,247 million a year ago to $1,200 million. However, a large increase in other expenses ($478 million compared to other income of $2,189 million) led to a $3,253 million year-over-year rise in total operating costs.

The jump in costs and lower revenues meant that PBR reported an operating income of $8,478 million in the second quarter of 2023 compared with $19,557 million a year ago.

Financial Position

During the three months ended Jun 30, 2023, Petrobras’ capital investments and expenditures (excluding signature bonus) totaled $3,100 million compared with $2,181 million in the prior-year quarter.

Importantly, the company generated a positive free cash flow for the 33rd consecutive quarter, with the metric coming in at $6,721 million, which, however, dropped significantly from $12,789 million recorded in last year’s corresponding period.

At the end of the second quarter of 2023, Petrobras had a net debt of $42,177 million, up from $34,435 million a year ago and $37,588 million as of Mar 31, 2023. The company ended the quarter with cash and cash equivalents of $10,351 million.

Meanwhile, Petrobras’ net debt to trailing 12 months EBITDA ratio deteriorated to 0.74 from 0.60 in the previous year. It also worsened from 0.58 at the end of the first quarter of 2023.

Zacks Rank & Key Picks

Petrobras carries a Zacks Rank #3 (Hold) at present.          

Meanwhile, investors interested in the energy sector might look at operators like Solaris Oilfield Infrastructure (SOI Quick QuoteSOI - Free Report) , Helix Energy Solutions Group (HLX Quick QuoteHLX - Free Report) and CVR Energy (CVI Quick QuoteCVI - Free Report) . Each of these companies has a Zacks Rank #1 (Strong Buy).

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

Solaris Oilfield Infrastructure: SOI beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters at an average of 18.8%.

SOI is valued at around $497 million. Solaris Oilfield Infrastructure has seen its shares move up 3.4% in a year.

Helix Energy Solutions Group: Over the past 30 days, Helix Energy Solutions Group saw the Zacks Consensus Estimate for 2023 move up 4.3%. The 2023 Zacks Consensus Estimate HLX indicates 200% year-over-year earnings per share growth.

Helix Energy Solutions Group is valued at around $1.4 billion. HLX has seen its shares surge 134.5% in a year.

CVR Energy: CVI beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters. Over the past 30 days, CVR Energy saw the Zacks Consensus Estimate for 2023 move up 13.2%.

CVR Energy is valued at around $3.6 billion. CVI has seen its shares gain 10.8% in a year.