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Shell (RDS.A) Q3 Earnings Jump on Oil Surge, Cash Flow Soars

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Europe’s largest oil company Royal Dutch Shell plc (RDS.A - Free Report) reported weaker-than-expected third-quarter earnings as lower downstream results more than offset strong contributions from the upstream and the integrated gas segment. The Hague-based Shell reported earnings per ADS (on a current cost of supplies basis, excluding items - the market’s preferred measure) of $1.36, below the Zacks Consensus Estimate of $1.43.

However, the bottom line was significantly above the earnings of $1.00 in the year-earlier quarter due to surging oil prices.

Revenues of $101.5 billion were 31% above the third-quarter 2017 sales of $77.7 billion.

Operating expenses decreased in the quarter, coming in at $9.3 billion, compared to $9.5 billion in the corresponding period last year.

Meanwhile, Shell will repurchase $2.5 billion worth of shares up to Jan 28 in the second instalment of its three-year $25 billion buyback program. This is up from the first tranche of $2 billion.

Royal Dutch Shell PLC Price, Consensus and EPS Surprise


Royal Dutch Shell PLC Price, Consensus and EPS Surprise | Royal Dutch Shell PLC Quote

Segmental Performance

Upstream: Upstream segment recorded a profit of $1.9 billion (excluding items) during the quarter, soaring from the paltry $562 million (adjusted) achieved in the year-ago period.

This primarily reflects the impact of higher oil and gas realizations. At $68.38 per barrel, the group’s worldwide realized liquids prices were 45% above the year-earlier levels while natural gas prices were up 16%. Apart from pricing, results were also buoyed by lower depreciation. 

Shell’s upstream volumes averaged 2,672 thousand oil-equivalent barrels per day (MBOE/d), 1% higher than the year-ago period. Liquids contributed approximately 60% to Shell’s total volumes, while natural gas accounted for the remaining portion. While asset sales reduced the company’s oil and gas production to some extent, it was more than offset by new field start-ups and ramp-ups of existing operations.  

Downstream: In the downstream segment – that focuses on refining, marketing and retailing – the Anglo-Dutch super-major reported adjusted income of $2 billion, 25% less than the $2.7 billion earned in the year-ago period. The negative comparison reflects the impact of weaker refining margins, higher operating costs and foreign currency translation effects.

Integrated Gas: The Integrated Gas unit reported adjusted income of $2.3 billion, up 79% from the $1.3 billion in July-September quarter of 2017. Results were favorably impacted by increase in commodity prices and increased trading profitability.

Cash Flow

During the quarter under review, Shell generated cash flow from operations of $12.1 billion, returned $3.9 billion to shareholders through dividends and spent $5.8 billion on capital projects. Apart from rising handsomely from the year-ago period, the Zacks Rank #3 (Hold) company’s resilient cash generation took its cash flow from operations to its highest since 2014. Importantly, the group raked in $8 billion in free cash flow during the third quarter.

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

Balance Sheet

As of Sep 30, 2018, the company had $19.1 billion in cash and $78.4 billion in debt (including short-term debt). Net debt-to-capitalization ratio was approximately 23.1%, down from 25.7% a year ago. The improvement in the group’s debt ratio was helped by cost cuts and asset sales.  

Earnings Schedules of Other Oil Supermajors

Among the major integrated players, ExxonMobil (XOM - Free Report) and Chevron (CVX - Free Report) are scheduled to release tomorrow, while continental rival BP plc (BP - Free Report) reported third-quarter earnings earlier this week.

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