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Petrobras (PBR) Q4 Earnings Jump on Oil Surge, Output Falls

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Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras (PBR - Free Report) announced fourth-quarter earnings per ADS of 8 cents, missing the Zacks Consensus Estimate of 38 cents. The weaker-than-expected results can be attributed to impairments and charges associated with legal disputes.

However, the bottom line compared favorably with the year-earlier quarter’s loss of 26 cents, boosted by a rise in the price of oil. Net quarterly profit of R$2.1 billion turned around from a loss of R$5.5 billion, while adjusted EBITDA rose to R$29.2 billion from R$13 billion a year ago.

The troubled national oil company’s net operating revenues of $24.3 billion was ahead of the year-earlier sales of $23.6 billion.

Let's take a deeper look at the recent performances from the company's two main segments: Upstream (Exploration & Production) and Downstream (or Refining, Transportation and Marketing).

Upstream: The Rio de Janeiro-headquartered company’s total oil and gas production during the fourth quarter reached 2,659 thousand barrels per day (Mbbl/d) – 80% liquids – down from 2,737 Mbbl/d in the same period of 2017.

Compared with the fourth quarter of 2017, Brazilian oil and natural gas production – constituting 96.5% of the overall output – decreased 2.7% to 2,566 Mbbl/d.

In the Oct to Dec period, the average sales price of oil in Brazil jumped 19.5% from the year-earlier period to $66.71 per barrel. This enabled Petrobras' upstream unit to earn R$13.2 billion in the quarter, a meaningful improvement from the R$10.2 billion income in the year-earlier period.

Downstream: During the fourth quarter, Petrobras' downstream unit lost R$5.1 billion, as against the year-earlier period income of R$4.6 billion. The deterioration reflects weak oil products sales margins.

Costs: During the period, Petrobras’ sales, general and administrative expenses stood at R$2.4 billion, 1.5% higher than the year-ago period. However, selling expenses fell by 47.8% to R$2.1 billion.

Financial Position: During the three months ended Dec 31, 2018, Petrobras’ capital investments and expenditures totaled around R$10 billion, 26% lower than the R$13.5 billion incurred in the year-ago period. The lower capital spending reflects an attempt by the company to pay down debt.

As a result, free cash flow came in at R$17.1 billion for the quarter, surging 159.1% year over year.

The world's most indebted oil company also managed to trim its massive leverage and lower its net debt to EBITDA ratio to 2.20 in 2018 from 3.67 in the previous year.

At the end of 2018, the company had net debt of $69.4 billion, decreasing from the $84.9 billion at the end of 2017 and $96.4 billion as of Dec 31, 2016. Net debt-to-capitalization ratio was 49%, down from 51% twelve months ago. Additionally, Petrobras finished the fourth quarter with cash and cash equivalents of $13.9 billion.

Zacks Rank & Stock Picks

Petrobras currently retains a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space are Enbridge Inc. (ENB - Free Report) , Archrock, Inc. (AROC - Free Report) and NuStar Energy L.P. (NS - Free Report) . All the companies carry a Zacks Rank #2 (Buy).

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

Enbridge’s earnings beat the Zacks Consensus Estimate in three of the last four quarters, the average positive surprise being 31.8%.

The 2019 Zacks Consensus Estimate for Archrock is 63 cents, representing 31.3% earnings per unit growth over 2018. Next year’s average forecast is 78 cents pointing to another 23.8% growth.

The 2019 Zacks Consensus Estimate for NuStar is $1.10, representing 64.2% earnings per unit growth over 2018. Next year’s average forecast is $1.32 pointing to another 20.3% growth.

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