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Why Is Suncor Energy (SU) Down 1.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Suncor Energy (SU - Free Report) . Shares have lost about 1.9% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Suncor Energy 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 catalysts.

Suncor Puts up a Stellar Q1 Show

Suncor Energy posted operating earnings per share of 58 cents, topping the Zacks Consensus Estimate of 39 cents. The bottom line also improved from the prior-year earnings of 48 cents per share.

Quarterly operating revenues totaled $7,068 million, beating the Zacks Consensus Estimate of $7,060 million. Moreover, the top line increased from $6,924 million in the year-ago quarter.

Upstream

Total upstream production in the reported quarter was 764,300 barrels of oil equivalent per day (Boe/d), up from the prior-year level of 689,400 Boe/d. The increase in output was backed by robust operations in Fort Hills, Hebron and Syncrude projects, partly offset by mandatory production cuts implemented by the Alberta government.

Notably, Fort Hills production came in at 78,400 barrels per day (Bbl/d) in the quarter under review, representing a whopping 218.7% increase from the prior-year period on the back of ramped-up operations.

Production from Syncrude operations increased to 182,200 Bbl/d from 142,300 Bbl/d in the year-ago quarter on the back of improved asset reliability. In the quarter under review, upgrader reliability at Syncrude was 90%, higher than 71% a year ago.

Oil Sands operations volume was 396,600 Bbl/d compared with 404,800 Bbl/d in the year-ago quarter. The decrease can be attributed to mandated production cuts, which impacted non-upgraded bitumen production. Nonetheless, upgrader utilization improved to 98% from 80% in the year-ago quarter. The year-ago upgrader utilization was impacted by weather-related outage. Operating costs per barrel increased to C$29.95 in the quarter under review from C$26.85 in the corresponding period of 2018.

Suncor’s Exploration and Production segment (consisting of International, Offshore and Natural Gas segments) produced 107,100 Boe/d compared with 117,700 Boe/d in the prior-year quarter. The results were impacted by lower output levels from the White Rose field and United Kingdom, partially offset by increased output from Hebron.

The upstream unit recorded operating earnings of C$681 million vis-a-vis C$352 million in the prior-year quarter, thanks to stronger y/y output levels, and improved price realizations for oil sands operations and Fort Hills bitumen.

Downstream

Operating earnings from the downstream unit increased to C$1,009 million from the year-ago figure of C$789 million amid FIFO gains and widening crack spreads. Suncor recorded improved refinery margins and increasing refined product sales in the quarter under review.  The company’s refined product sales of 542,800 Bbl/d increased from the prior-year level of 512,900 Bbl/d on record Canadian wholesale volumes and higher retail volumes. Refining margin was C$36.35 a barrel vis-a-vis C$30.50 in the year-ago quarter.

Crude throughput came in at 444,900 Bbl/d in the first quarter compared with 453,500 Bbl/d in the year-ago period. Also, refinery utilization came in at 96% compared with 98% in the year-ago quarter.

Expenses

Total expenses in the reported quarter declined to C$7,391 million from C$7,596 million in the year-ago period. The decrease in total expenses is mainly attributed to lower financing expenses and reduced costs related to the purchase of oil, partly offset by higher depreciation, exploration and selling costs.

Financials

Importantly, cash flow from operating activities came in at C$1,548 million in the first quarter, up 113.8% from the prior-year figure. The company incurred capital expenditure of C$875 million in the quarter under review.

As of Mar 31, Suncor had cash and cash equivalents of C$1,875 million, and total long-term debt of C$19,173 million. Its total debt-to-capitalization ratio was approximately 30%.

Dividend and Share Repurchase

Suncor returned C$662 million to its shareholders through dividends and bought back C$514 million of outstanding shares in first-quarter 2019.

As announced in February 2019, Suncor had increased its quarterly dividend payout by 17% to $0.42 per share, marking the 17th consecutive year of annualized dividend payments. The company approved another buyback program of up to C$2 billion to boost its shareholders’ confidence.

The quarterly dividend of 42 cents a share will be payable on Jun 25, 2019 to its shareholders of record as of Jun 4.

Guidance

Suncor reiterated its guidance for 2019. The company expects 2019 total production in the band of 780,000-820,000 Boe/d. Production from oil sands is estimated within 410,000-440,000 bbls/d. Moreover, production from Syncrude is expected in the band of 160,000-180,000 bbls/d. Fort Hills’ output is expected within 85,000-95,000 bbls/d. Total refinery throughput is projected in the range of 430,000-450,000 bbl/d, with refinery utilization of 93-97%. Capex also remains intact in the band of C$4.9-C$5.6 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 24.08% due to these changes.

VGM Scores

At this time, Suncor Energy has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

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

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Suncor Energy has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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