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Will Refining Segment Drive Andeavor's (ANDV) Q2 Earnings?

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Andeavor is set to release second-quarter 2018 results on Aug 6 after the closing bell. The Zacks Consensus Estimate for earnings stands at $2.96 a share on revenues of $12,356 million.

San Antonio, TX-based Andeavor is a refining and marketing company of petroleum products. In the last reported quarter, the company delivered a positive earnings surprise of 12.07% on stellar show from the refining and logistics segment.

Coming to its earnings surprise history, Andeavor missed estimates in two out of the last four quarters, delivering an average negative surprise of 11.46%.

Andeavor Price and EPS Surprise


Andeavor Price and EPS Surprise | Andeavor Quote

Let’s see how things are shaping up for this announcement.

Which Way are Estimates Trending?

The Zacks Consensus Estimate for earnings of $2.96 for the to-be-reported quarter has been revised downward by 16 cents in the past 30 days. However, the consensus estimate reflects an increase of 51% from second-quarter 2017. Further, estimated revenues of $12,356 million also compares favorably with $7,849 million recorded in the year-ago quarter.

Factors at Play

The oil benchmark in the United States attained its highest settlement since November 2014 in the second quarter, despite record high domestic production. Per the conventional wisdom, oil price rally should make the input cost higher for the refiners, thereby impacting their performance. However, since the crude oil and refined products’ prices don’t always move in lockstep, the recent crude uptick will not likely act as a negative catalyst in the quarter to be reported.

Further, crack differentials are also widening, leading to margin expansion and higher refining capacity rate for the refiners. Refiners are also reaping the benefit of increased demand for their products. As such, the refining segment of Andeavor is expected to record an improvement in results.

The company had earlier projected throughput volumes within 1,055-1,110 thousand barrels per day (MBbl/d), higher than the year-ago quarter’s 893 MBbl/d. Earnings are likely to be driven by higher volumes processed. The Logistics segment of the company is set to benefit from the positive contributions from the Western Refining Logistics buyout.

However, rising expenses over the past few quarters remain a concern. In the last reported quarter, Andeavor’s operating, depreciation as well as general & administrative costs increased 32%, 24.7% and 28.5% year over year, respectively.  If the trend continues in the to-be-reported quarter, it will adversely affect profitability.

Earnings Whispers

Our proven model does not show that Andeavor is likely to beat earnings estimates in the quarter to be reported. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

That is not the case here as you will see below.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate both stand at $2.96.

Zacks Rank: Andeavor currently holds a Zacks Rank #3. Though a Zacks Rank #3 increases the predictive power of ESP, the company’s 0.00% ESP makes surprise prediction difficult.

Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

While an earnings beat seems uncertain for Andeavor, here are some companies from the energy sector, which according to our model, have the right combination of elements to post an earnings beat in the to-be-reported quarter:

Penn Virginia Corporation (PVAC - Free Report) has an Earnings ESP of +6.72% and sports a Zacks Rank #1. The company is anticipated to report second-quarter earnings on Aug 7. You can see the complete list of today’s Zacks #1 Rank stocks here.

Murphy Oil Corporation (MUR - Free Report) has an Earnings ESP of +5.99% and a Zacks Rank #2. The company is anticipated to report second-quarter earnings on Aug 8.

Sanchez Energy Corporation (SN - Free Report) has an Earnings ESP of +3.41% and a Zacks Rank #3. The firm is expected to announce second-quarter earnings on Aug 7.

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