Imperial Oil (IMO) Down 3.5% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Imperial Oil (IMO). Shares have lost about 3.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Imperial 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 its most recent earnings report in order to get a better handle on the important catalysts.

Imperial Oil Q1 Earnings Beat on Upstream Strength

Imperial Oil reported adjusted earnings of 5 cents a share that beat the Zacks Consensus Estimate of a loss of 2 cents. The quarterly earnings were driven by higher upstream production. However, the Canadian integrated oil and gas player’s bottom line plunged significantly from the year-ago quarter’s reported figure of 29 cents due to lower price realizations.

In the first quarter, revenues of $4.99 billion came ahead of the Zacks Consensus Estimate of $4.6 billion. However, the top line fell from the year-ago quarter’s figure of $6billion.

Segmental Information

Upstream: Revenues amounted to C$2,374 million that decreased from prior-year quarter’s level of C$3,188 million. The segment incurred a net loss amounted to C$608 million against net income of C$58 million in the year-ago quarter. The deteriorated result was induced by lower commodity price realizations in the upstream and non-cash charges of $301 million.

Net production volumes during the quarter under review averaged 403,000 barrels of oil equivalent per day (Boe/d) compared with 353,000 Boe/d in the year-ago quarter on strong volumes from the Kearl oilsands project. Total oil and NGL output amounted to 374,000 barrels per day (BPD) compared with 329,000 BPD in first-quarter 2019. Net oil and NGL output from Kearl and Cold Lake totaled154,000 bpd and 134,000 bpd, respectively. Syncrude output averaged 71,000 BPD, up 3% from the year-earlier quarter. Net natural gas production came in at 172 million cubic feet per day (Mcf/d), higher than 143Mcf/d in the comparable quarter last year.

Bitumen (accounting for 77% of the output) price realizations totaled C$18.08 a barrel, down from C$48.85 in the year-ago quarter. The company received average realized price of C$58.94 per barrel of synthetic oil compared with the year-ago quarter’s C$69.34. For conventional crude oil, it received C$41.49 per barrel compared with the year-ago quarter’s figure of C$52.11. Prices of NGL and gas declined year over year to C$9.26 a barrel and C$1.77 per thousand cubic feet, respectively.

Downstream: Revenues totaled C$5,379 million, down from $5,932 million in first-quarter 2019. However, net income of C$402 million improved from C$257 million attributable tohigher margins of about $190 million and lower net impacts from reliability events of about $50 million.

Refinery throughput in first-quarter 2020 averaged 383,000 BPD, in-line with the prior-year quarter’s level. Capacity utilization of 91% was also in-line with the corresponding quarter of last year. The result was caused by lower refinery turnaround activities and record first-quarter throughput at the Strathcona refinery.

Chemical: Revenues of C$260 million fell from C$323 million in first-quarter 2019. Net income was recorded at C$21 million compared with the year-ago quarter’s figure of C$34 million.

Total Costs &Capex

Total expenses of C$6,945 million were lower than the year-ago quarter’s level of C$7,584 million.

In the quarter under review, the company’s total capital and exploration expenditures amounted to C$331 million, lower than the year-ago quarter’s figure of C$529 million. Of the total expenditure, 70% was allotted to the upstream segment.

Financial Performance

Imperial Oil’s cash flow from operating activities came in at C$423 million in the quarter under review. The figure deteriorated from the year-ago quarter’s level of C$1,003 million.

Importantly, the company paid back C$438 million to its shareholders through dividends and share buybacks in the reported quarter. Imperial Oil also paid out 22 Canadian cents as dividend per share compared with 19 Canadian cents a year ago.

Imperial Oil repurchased 9.8 million shares worth C$274 million including those bought from Exxon Mobil Corporation.

As of Mar 31, the company held C$1,388 million in cash and cash equivalents. Its total debt amounted to C$5,198 million, representing a debt-to-capital of 18.06%.

Outlook

Reacting to the coronavirus-induced sudden oil price slump, Imperial Oil is taking steps to rationalize its planned activities and capital spending for the current year.

Amid the growing crisis,the company announced considerable cuts in 2020 capital and operating spending plans. Capital and exploration expenditures for this year are now projected to be $1.1 billion to $1.2 billion, compared to the priorguided range of $1.6-$1.7 billion. Also, the company has classified certain prospects to lower 2020 operating expenses by $500 million compared to the year-ago levels.

Further, the company intending on operate managing some assets at reduced rates in the second quarter of 2020. Imperial Oil expedited the process of its Kearl project's planned turnaround by stopping work ahead of schedule for an extended period time. This, in turn, will lend the company a window to limit its current on-site staff strength to a bare minimum and take stock of the persisting low-demand scenario against a pandemic backdrop. This strategic action will further allow the company to manage its ramped-down production level in the near term. This in turn is likely to shrink Kearl’s total gross production to nearly 150,000 barrels per day in the second quarter of 2020.  Moreover, production from Syncrude is estimated to decline to 45,000 to 50,000 barrels per day in the second quarter of 2020.

By the end of the first quarter, refinery utilization rates and petroleum product sales were reduced due towaning demand for petroleum products in Canada, and are anticipated to persist in the second quarter as well.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -8.55% due to these changes.

VGM Scores

Currently, Imperial Oil has a subpar Growth Score of D, a grade with the same score on the momentum front. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Imperial Oil has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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