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Why Is SemGroup (SEMG) Down 17.3% Since Last Earnings Report?

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A month has gone by since the last earnings report for SemGroup (SEMG - Free Report) . Shares have lost about 17.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is SemGroup due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

SemGroup Q3 Earnings Miss Estimates, Sales Top

SemGroup reported third-quarter 2018 adjusted profit of 5 cents per share, missing the Zacks Consensus Estimate of 12 cents. Moreover, the company’s bottom line deteriorated from the year-ago adjusted income of 60 cents per share. The third-quarter earnings were affected by lower profit level from the Crude Facilities, coupled with widened loss from the Crude Supply and Logistics segment.

Total revenues recorded in the quarter came in at $634 million, surpassing the Zacks Consensus Estimate of $559 million. Further, sales were higher than the prior-year figure of $545.9 million. Higher volumes and rising commodity prices supported the top-line growth.

Segmental Information

Crude Transportation: This segment recorded a profit of $38.1 million, reflecting an increase from the year-ago quarter’s $34.6 million, primarily due to a fall in operating costs. Consolidated pipeline volumes decreased to 182 thousand barrels per day (Mbbl/d) from 190 Mbbl/d in the year-ago period. White Cliffs pipeline volumes of 112 Mbbl/d were higher than the year-ago figure of 105 Mbbl/d.

Crude Facilities: Profit generated from this segment amounted to $8.2 million, marginally lower than the year-ago level of $8.8 million, because of the timing of take-or-pay recognition. Cushing terminal utilization came in at 94%, flat year over year.

Crude Supply and Logistics: The segment’s loss in the quarter under review widened to $7 million, from $1.7 million incurred in the corresponding quarter of the last year, owing to inventory cost timing.

HFOTCO: This unit (acquired last year) generated a profit of around $36.2 million in the third quarter, much higher than the year-ago level of $28.5 million, backed by contributions from new assets. Average terminal utilization, however, fell to 96% from 98% in the year-ago quarter.

SemGas: During the third quarter, the SemGas segment earned $19.8 million, up from $15.6 million in the year-ago quarter. The increase can be attributed to higher average processing volumes and rising commodity prices.

SemCAMS: Profit generated from this unit recorded a year-over-year increase from $16.7 million in the year-ago quarter to $20.5 million in the quarter under review. The uptick reflects a year-over-year improvement in total average throughput volumes.

Balance Sheet

As of Sep 30, 2018, the company had cash and cash equivalents of $70 million, and a long-term debt of around $2.6 billion. Its debt-to-capitalization ratio was 62.7%.

2018 Guidance

SemGroup increased its full-year 2018 capital expenditure guidance to $360 million, which incorporates the investments on the new Pipestone Pipeline project, located in Canada. Canada is expected to witness capital spending of $203 million. In contrast, Mid-Continent and Gulf Coast are expected to receive $50 million and $67 million. The year-to-date results allowed the company to narrow its adjusted EBITDA guidance to the band of $385-$400 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -31.03% due to these changes.

VGM Scores

Currently, SemGroup has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, SemGroup has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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