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Petrobras (PBR) Q1 Earnings Buoyed by Rising Oil Prices

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Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras (PBR - Free Report) announced first quarter net income of $2,145 million or 16 cents per share, compared with $1,417 million or 11 cents in the year-earlier quarter. Earnings per ADR came in at 32 cents (1 ADR equivalent to 2 shares in the Brazilian market), well ahead of the Zacks Consensus Estimate of 19 cents.

Higher oil prices were primarily responsible for the outperformance, which helped Petrobras post its best quarterly earnings in five years.

Importantly, Petrobras generated free cash flows of $4,005 million for the quarter ended Mar 31 – positive for the twelfth quarter in a row – reflecting operational improvement and lower investments.

However, free cash flows fell 3% from the year-ago period due to the payment associated with a class action lawsuit. Moreover, adjusted EBITDA edged down 1% to $7,914 million.

The troubled national oil company’s net operating revenues of $22,958 million was ahead of the year-earlier sales of $21,737 million but was shy of the Zacks Consensus Estimate of $25,751 million amid lower production.

Upstream

The Rio de Janeiro-headquartered company’s total oil and gas production during the first quarter reached 2,680 thousand oil-equivalent barrels per day (MBOE/d) – 80% liquids – down from 2,805 MBOE/d in the same period of 2017. Compared with the first quarter of 2017, Brazilian oil and natural gas production – constituting 96% of the overall output – decreased 4% to 2,582 MBOE/d.

However, the fall in production was more than offset by higher oil realizations, the result being a healthy improvement in Petrobras’ upstream segment profit – from $2,067 million in the year-earlier quarter to $3,556 million.

Specifically, the average sales price of oil in Brazil jumped 23% from the year-earlier period to $62.27 per barrel.

Downstream

During the first quarter, Petrobras' downstream unit earned $1,291 million, down 27% from the year-earlier quarter figure of $1,291 million. The underperformance reflects lower diesel and gasoline margins due to a rise in their input costs with increase in oil prices, plus lower domestic oil products sales volume.

Costs

During the quarter, Petrobras’ general and administrative expenses stood at $660 million as against $733 million in the year-ago period. Meanwhile, selling expenses rose by 68% to $1,273 million.

Capital Spending & Balance Sheet

During the three months ended Mar 31, 2018, Petrobras’ capital investments and expenditures totaled $3,067 million, lower than the $3,672 million incurred in the year-ago period.

This allowed the world's most indebted oil company to trim its massive debt load. At the end of the quarter, the company had net debt of $81,447 million, decreasing from the $84,871 million as of Dec 31, 2017. Net debt-to-capitalization ratio during the same period was approximately 49%, down from 51% three months ago. Additionally, Petrobras finished the first quarter with cash and cash equivalents of $19,966 million.

Zacks Rank & Stock Picks

Petrobras currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at better-ranked energy players like BP plc (BP - Free Report) , Wildhorse Resource Development (WRD - Free Report) and CVR Refining, LP (CVRR - Free Report) . All are Zacks Rank #1 (Strong Buy) stocks. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

BP is one of the largest publicly traded oil and gas companies in the world. This London-headquartered company’s expected EPS growth rate for 3 to 5 years currently stands at 8.70%, comparing favorably with the industry growth rate of 5.50%.

Wildhorse is a company focused on the acquisition, development, exploration and operation of unconventional, onshore oil and gas properties in the northeastern end of the Eagle Ford Play in South Texas. The 2018 Zacks Consensus Estimate for this Houston, TX-based company is $1.67, representing some 288.4% earnings per share growth over 2017. Next year’s average forecast is $2.19, pointing to another 31.4% growth.

CVR Refining is an independent downstream energy partnership with refining and associated logistics properties in the Midcontinent United States. Over 30 days, the Sugar Land, TX-based company has seen the Zacks Consensus Estimate for 2018 and 2019 increase 61.2% and 29.2%, to $2.08 and $1.68 per share, respectively.

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