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Shell (RDS.A) Q3 Earnings Beat Despite Softer Oil Prices

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Europe’s largest oil company Royal Dutch Shell plc (RDS.A - Free Report) reported earnings per ADS (on a current cost of supplies basis, excluding items - the market’s preferred measure) of $1.18, beating the Zacks Consensus Estimate of 98 cents. The beat was driven by strong performance from the company’s Downstream and Integrated Gas segments.

However, the bottom line was 13.2% below the year-earlier quarter's earnings due to lower oil and gas prices.

The Hague-based Shell reported revenues of $89.5 billion, which were 11.8% below third-quarter 2018 sales of $101.5 billion.

Meanwhile, Shell will repurchase $2.75 billion worth of shares up to Jan 27 in the sixth installment of its three-year $25 billion buyback program.

Royal Dutch Shell PLC Price, Consensus and EPS Surprise


Royal Dutch Shell PLC Price, Consensus and EPS Surprise

Royal Dutch Shell PLC price-consensus-eps-surprise-chart | Royal Dutch Shell PLC Quote

Operational Performance

Upstream: Upstream segment recorded a profit of $907 million (excluding items) during the quarter, down 51.9% from the $1.9 billion (adjusted) achieved in the year-ago period. This primarily reflects the impact of lower oil and gas prices, decline in natural gas volumes plus write off of wells in Kazakhstan, partly offset by lower provisions and favorable deferred tax adjustments.

Shell’s upstream volumes averaged 2,606 thousand oil-equivalent barrels per day/MBOE/d (65% liquids), 2.5% lower than the year-ago period. Liquids production totaled 1,705 thousand barrels per day (up 6.4% year over year), while natural gas output came in at 5,224 million standard cubic feet per day (down 15.8%). Asset sales, disappointing operational performance and higher maintenance activities were primarily responsible for the decrease in the company’s oil and gas production, which were partly offset by ramp-ups of existing operations.

At $55.99 per barrel, the group’s worldwide realized liquids prices were 17.9% below the year-earlier levels while natural gas prices were down 14.8%.

Downstream: In the downstream segment – that focuses on refining, marketing and retailing – the Anglo-Dutch super-major reported adjusted income of $2.2 billion, 7.1% more than the year-ago period. The positive comparison was due to robust oil trading contributions as well as higher retail and global commercial margins.

Integrated Gas: The Integrated Gas unit reported adjusted income of $2.7 billion, up 16.7% from the $2.3 billion in July-September quarter of 2018. Results were primarily driven by stronger LNG trading contributions and rising output.

Financial Performance

As of Sep 30, 2019, the Zacks Rank #3 (Hold) company had $15.4 billion in cash and $88.9 billion in debt (including short-term debt). Net debt-to-capitalization ratio was approximately 27.9%, up from 23.1% a year ago. The deterioration in the group’s debt ratio was due to the adoption of IFRS 16 accounting standard.  

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During the quarter under review, Shell generated cash flow from operations of $12.3 billion, returned $3.8 billion to shareholders through dividends and spent $7.8 billion on capital projects.

The company’s cash flow from operations edged up 1.3% from the year-earlier level. Meanwhile, the group raked in $10.1 billion in free cash flow during the third quarter, up from $8 billion a year ago. Moreover, it was sufficient enough to take care of its $2.75-billion share buyback and its $3.8-billion dividend payout.

Fourth-Quarter Outlook

Shell, which delivered on its $30 billion divestment target for 2016-2018, expects fourth quarter 2019 upstream volumes to be 2,650-2,800 MBOE/d, while Integrated Gas production is expected to be between 920 MBOE/d and 970 MBOE/d. Finally, the company expects full-year 2019 capital budget to revolve around the lower range of the $24-$29 billion band.

Earnings Schedules of Other Oil Supermajors

Among the major integrated players, ExxonMobil (XOM - Free Report) and Chevron (CVX - Free Report) are scheduled to release tomorrow, while continental rival BP plc (BP - Free Report) reported better-than-expected third-quarter earnings earlier this week.

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