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Why Is Imperial Oil (IMO) Down 7.8% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Imperial Oil (IMO). Shares have lost about 7.8% 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 the most recent earnings report in order to get a better handle on the important drivers.

Imperial Oil Q1 Earnings Lag, Sales Beat Estimates

Imperial Oil reported first-quarter 2019 earnings per share of 29 cents, missing the Zacks Consensus Estimate of 38 cents. The underperformance can be attributed to weaker contribution from the downstream segment. The Canadian integrated oil and gas player’s bottom line also reflects a decline from the year-ago figure of 49 cents.

Meanwhile, Imperial Oil generated first-quarter revenues of $6,004 million, surpassing the Zacks Estimate of $4,392 million. However, the top line plunged from the year-ago figure of $6,278 million.

Bringing in pleasant news for investors, the company announced a 16% hike in the second-quarter dividend. The company declared a dividend of 22 Canadian cents a share, payable on July 1, 2019 to its shareholders of record as of Jun 3, 2019.

Upstream: Revenues from the segment came in at C$3,188 million, increasing from first-quarter 2018’s C$2,647 on higher output levels. As such, the segment swung to profit of C$58 million against C$44 million loss in the year-ago period.

Net production volumes during the quarter under review averaged 353,000 barrels of oil equivalent per day (Boe/d) compared with 337,000 Boe/d in the year-ago period. Total oil and NGL output amounted to 329,000 barrels per day (BPD) versus 318,000 BPD in first-quarter 2018. Net output from Kearl and Cold Lake totaled 124,000 bpd and 123,000 bpd, respectively. Syncrude output averaged 78,000 BPD, rising 20% on stronger asset reliability. Net natural gas production came in at 143 million cubic feet per day.

The company received average realized price of C$69.34 per barrel of synthetic oil compared with the year-ago quarter’s C$77.26. For conventional crude oil, it received C$52.11 per barrel compared with the year-ago figure of C$63.70. Prices of NGL and gas declined on a y/y basis to C$34.39 a barrel and C$2.88 per thousand cubic feet, respectively.

Downstream: Revenues from the downstream segment totaled C$5,932 million, declining from $5,991 million in first-quarter 2018. The segmental net income totaled C$257 million, decreasing from C$521 million on lower margins.

Refinery throughput in first-quarter 2019 averaged 383,000 BPD, depicting a decline from the prior-year level of 408,000 BPD. Capacity utilization came in at 91% versus 96% in the corresponding quarter of the last year. Petroleum product sales were 477,000 BPD compared with the prior-year level of 478,000 BPD.

Chemical: The segment generated revenues of C$323 million versus C$377 million in first-quarter 2018. Net income from the segment was recorded at C$34 million compared with the year-ago figure of C$73 million. The decline came on the back of lower industry margins.

Total Costs & Capex

Total expenses during the quarter were C$7,584 million, higher than the year-ago level of C$7,237 million.

In the quarter under review, the company’s total capital and exploration expenditures were C$529 million, higher than the year-ago level of C$274 million. Of the total expenditure in first-quarter 2019, 70% was allotted to the upstream segment.

Financial Performance

Imperial Oil generated cash flow from operating activities of C$1,003 million in the quarter under review. The figure improved from the year-ago level of C$985 million.

Importantly, in the quarter under review, it paid back C$510 million to its shareholders through dividends and share buyback. The company paid 19 Canadian cents as dividend per share in the reported quarter compared with 16 Canadian cents in the year-ago period. Imperial Oil bought back around 10 million shares in the quarter for C$361 million.

As of Mar 31, the company held C$1,011 million in cash and cash equivalents. Its long-term debt amounted to C$5,174 million, representing a debt-to-capital ratio of around 17.5%.

Guidance

For full-year 2019, the company’s total capital expenditure is now expected in the range of C$1.8-C$1.9 billion versus prior guided range of C$2.3-C$2.4 billion, as it has decided to decelerate the development of Aspen in situ oil sands project amid pipeline crisis and market uncertainty in Canada.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Imperial Oil has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile 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 trending upward for the stock, and the magnitude of these revisions looks promising. Notably, 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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