A month has gone by since the last earnings report for Marathon Oil (MRO - Free Report) . Shares have lost about 10.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Marathon Oil due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Marathon Oil Q3 Earnings Beat on Higher Output, Oil Price
Marathon Oil posted third-quarter adjusted income from continuing operations of 24 cents per share, surpassing the Zacks Consensus Estimate of 20 cents. The better-than-expected performance was driven by higher-than-anticipated production from both its United States Exploration & Production (E&P) unit and the International segment. Precisely, the U.S. (E&P) output available for sale in the quarter under review totaled 304,000 barrels of oil equivalent per day (Boe/d), surpassing the consensus estimate of 300,00 Boe/d. Output from international operations came in at 115,000 Boe/d, topping the consensus estimate of 110,000 Boe/d.
The bottom line also turned around from the year-ago quarter’s loss of 8 cents on the back of higher year-over-year output and improved oil price realizations, along with lower costs. Notably, total net production in the quarter came in at 419,000 Boe/d compared with 394,000 Boe/d in the year-ago quarter.
Quarterly revenues of $1,667 million also surpassed the Zacks Consensus Estimate of $1,501 million. Further, the top line was up 33.1% from the prior-year level.
Importantly, the company generated organic free cash flow of $320 million during the quarter, with year-to date FCF amounting to $632 million.
United States E&P: Marathon Oil’s United States upstream segment reported a profit of $201 million against a loss of $38 million a year ago. Higher oil prices and production improved the segment’s results.
The company reported production available for sale of 304,000 Boe/d, up from 245,000 Boe/d in the third quarter of 2017. The output also surpassed the higher end of the company’s guidance range. The improvement was mainly due to impressive contribution from U.S. resource plays in Eagle Ford, Bakken and Northern Delaware.
The company realized liquids (crude oil and condensate) price of $68.51 per barrel, 46.8% higher than the year-earlier level of $46.65. Natural gas liquids (NGLs) price realizations also recorded a year-over-year increase of 34.5% to stand at $28.07 a barrel. However, natural gas realizations decreased 5.9% year over year to $2.55 per thousand cubic feet.
International E&P: The segment’s income increased from $104 million in the prior-year quarter to $116 million in the third quarter of 2018 on higher crude realizations.
Marathon Oil reported production available for sale of 115,000 Boe/d, down from 149,000 BOE/d in the third quarter of 2017. The decrease in output was primarily due to a fall in production from Equatorial Guinea and United Kingdom. The company’s exit from Libyan operations also led to weaker output.
However, Marathon Oil realized liquids (crude oil and condensate) price of $64.08 per barrel, reflecting a 25% rise from the year-earlier quarter’s $51.23 per barrel. However, natural gas and natural gas liquids realizations witnessed a year-over-year reduction in the quarter under review.
Costs & Expenses
Importantly, total expenses of the company also reduced 24.6% to a total of $1,244 million in the third quarter of 2018 compared with $1,624 million in the corresponding quarter of the prior year. Its exploration expenses in the quarter reduced almost 81% y/y to stand at $56 million. Depreciation and amortization costs also declined to $626 million from the year-ago figure of $641 million.
Capex & Balance sheet
During the quarter, Marathon Oil’s capital expenditure came in at $691 million. As of Sep 30, 2018, it had cash and cash equivalents of $1,564 million, and long-term debt of $5,498 million. Debt-to-capitalization ratio of the company was 31.3%.
2018 Guidance Raised
Marathon Oil expects its third-quarter 2018 United States E&P output available for sale in the range of 290,000-300,000 Boe/d. International E&P output is expected to remain within 105,000-115,000 BOE/d, down from the second-quarter level, owing to planned maintenance in the United Kingdom and Equatorial Guinea.
Driven by robust third-quarter performance, it increased its full-year production guidance to 405,000-415,000 Boe/d from prior expectation of 400,000-415,000 Boe/d. The company also hiked its guidance for annual resource play oil and Boe growth from prior expectation of 28-32% to 30-34%, with capital expenditure budget remaining intact at $2.3 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -14.58% due to these changes.
At this time, Marathon Oil has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Marathon Oil has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.