Petrobras (PBR) Misses on Q3 Earnings, Manages to Cut Debt

Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras PBR saw its shares crash more than 7% after it announced third-quarter earnings per ADR of 3 cents, way short of the Zacks Consensus Estimate of 15 cents and a lot lower than the year-ago earnings of 12 cents.

Judicial contingency provisions, payments on account of a tax agreement with Brazil’s government, weak domestic demand and lower margins at its downstream unit primarily impacted Petrobras’ bottom line. These factors were partly offset by higher crude price.

On a somewhat positive note, Petrobras generated free cash flows of $4,657 million for the quarter ended Sep 30 -- positive for the 10th quarter in a row -- reflecting operational improvement and lower investments. However, adjusted EBITDA was down 11.4% year over year to $6,075 million.

For the first nine months of the year, exports of oil and oil products rose 39%, while imports fell 19%. This helped the company maintain the position of net exporter with a positive balance of 385 thousand barrels per day.

Petroleo Brasileiro S.A.- Petrobras Price, Consensus and EPS Surprise

Petroleo Brasileiro S.A.- Petrobras Price, Consensus and EPS Surprise | Petroleo Brasileiro S.A.- Petrobras Quote

Modifies Asset Sales, Cash Targets

Petrobras lowered the goal for asset divestitures for this year to $7 billion from $8 billion previously, a sign that Brazil's flagship oil company has been hamstrung by court verdicts, freezing some deals.

In a presentation following third-quarter results, Petrobras said cash and equivalents are expected at $21 billion by year-end, up from the previous announcement of $20 billion.

Revenue, Production and Prices

The troubled national oil company’s net operating revenues of $22,700 million improved from the year-earlier sales of $21,693 million on higher crude prices but fell shy of the Zacks Consensus Estimate of $23,141 million.

The Rio de Janeiro-headquartered company’s total oil and gas production during the third quarter reached 2,749 thousand oil-equivalent barrels per day (MBOE/d) – 80% liquids – down from 2,869 MBOE/d in the same period of 2016. The decline could be attributed to tumbling capital expenditure.

Compared with the third quarter of 2016, Brazilian oil and natural gas production – constituting 96% of the overall output – decreased 3% to 2,640 MBOE/d.

In the July to September period, the average sales price of oil in Brazil jumped 15.6% from the year-earlier period to $48.30 per barrel.

Capital Spending & Balance Sheet

During the nine months ended Sep 30, 2017, Petrobras’ capital investments and expenditures totaled $10,528 million, sharply lower than the $11,590 million incurred in the year-ago period. Also, over the past year, the company cut its workforce by 12% through a voluntary separation program.

This allowed the world's most indebted oil company to trim its massive debt load. At the end of September 2017, the company had net debt of $88,143 million, reflecting a decrease from $96,381 million as of Dec 31, 2016. Net debt-to-capitalization ratio was approximately 51%, down from 55% nine months ago. Additionally, Petrobras finished the third quarter with cash and cash equivalents of $23,495 million.

Zacks Rank & Stock Picks

Petrobras currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at better-ranked energy players like ExxonMobil Corporation XOM, ConocoPhillips COP and PBF Energy Inc. PBF. Each of these are Zacks Rank #1 (Strong Buy) stocks. You can see the complete list of today’s Zacks #1 Rank stocks here.

Irving, TX-based ExxonMobil is the world’s largest publicly traded oil company, engaged in oil and natural gas exploration and production, petroleum products refining and marketing, chemicals manufacture, and other energy-related businesses. The company’s expected EPS growth rate for three to five years currently stands at 13.1%, comparing favorably with the industry's growth rate of 8.6%.

Houston, TX-based ConocoPhillips is a major global exploration and production (E&P) company with operations and activities in 21 countries that include the U.S., Canada, the U.K./Norway, China, Australia, offshore Timor-Leste, Indonesia, Libya, Nigeria, Algeria, Russia and Qatar. The 2017 Zacks Consensus Estimate for this company is 54 cents, representing some 120.4% earnings per share growth over 2017. Next year’s average forecast is $1.67, pointing to another 208.2% growth.

PBF Energy is a leading independent refiner, transporter and marketer of petroleum products with a combined crude processing capacity of roughly 900 thousand barrels per day. Over 30 days, the Parsippany, NJ-based firm has seen the Zacks Consensus Estimate for 2017 and 2018 increase 35.9% and 20.5%, to $1.59 and $2.88 per share, respectively.

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