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Why Is Chevron (CVX) Down 2.5% Since Last Earnings Report?

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A month has gone by since the last earnings report for Chevron (CVX - Free Report) . Shares have lost about 2.5% in that time frame, underperforming the S&P 500.

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

Chevron Q2 Earnings Top on Production Gains

Chevron reported Chevron reported strong second-quarter earnings, boosted by record production. The company reported earnings per share of $2.27, ahead of the Zacks Consensus Estimate of $1.74 and the year-ago profit of $1.78.

The U.S. energy major’s results were also positively impacted by a fee it received for the failed merger attempt with Texas-based upstream company Anadarko Petroleum Corp . In May, Chevron ended its attempt to buy Anadarko, after it decided not to compete with Occidental Petroleum’s offer. The termination of the deal triggered a break-up fee of $1 billion to Chevron.

These factors were partially offset by drop in profits in its downstream business, which refines crude oil into fuels like gasoline and diesel oil.

Quarterly revenue of $38.9 billion missed the Zacks Consensus Estimate of $41.7 billion and was down 8% year over year on lower oil and natural gas price realizations.

Segment Performance

Upstream: Chevron’s total production of crude oil and natural gas increased more than 9% compared with last year’s corresponding period to 3,084 thousand oil-equivalent barrels per day (MBOE/d) – the third successive quarter where volumes exceeded 3 million barrels per day. The U.S. output rose 21.5% year over year to 898 MBOE/d while the company’s international operations (accounting for 71% of the total) increased 4.7% to 2,186 MBOE/d.

Apart from the shale assets in the prolific Permian Basin, the strong output could be attributed to contribution from its Gulf of Mexico deepwater projects and the Wheatstone LNG development in Australia.

However, the rise in production was partly offset by lower oil and gas realizations, the result being a 5.7% rise in Chevron’s upstream segment profit – from $3.3 billion in the year-earlier quarter to $3.5 billion.

Downstream: Chevron’s downstream segment achieved earnings of $729 million, 13% lower than the profit of $838 million last year. The decline primarily underlined a fall in domestic refined products sales margins and lower equity earnings from its petrochemicals JV with Phillips 66.

Cash Flows, Capital Expenditure

Importantly, America's No. 2 energy producer behind ExxonMobil delivered a solid cash flow performance this quarter – an important gauge for the oil and gas industry – with $8.7 billion in cash flow from operations, up from $6.9 billion a year ago.

The company spent $5.3 billion in capital expenditures during the quarter, up from the year-ago period’s $4.8 billion. Roughly 83% of the total outlays pertained to upstream projects.

Balance Sheet

As of Jun 30, the San Ramon, CA-based company had $8.5 billion in cash and cash equivalents and total debt of $30.6 billion, with a debt-to-total capitalization ratio of about 16.4%.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Chevron has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. 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 A. 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, Chevron has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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