Why Is Imperial Oil (IMO) Down 8.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Imperial Oil (IMO). Shares have lost about 8.6% 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 catalysts.

Imperial Oil Q2 Earnings Up Year-Over-Year

Imperial Oil reported second-quarter 2019 earnings per share of 66 cents, surpassing the Zacks Consensus Estimate of 60 cents. The outperformance can be attributed to stronger contribution from its upstream and downstream segments. The Canadian integrated oil and gas player’s bottom line also surged from the year-ago figure of 19 cents.

Imperial Oil generated second-quarter revenues of $6,924 million, surpassing the Zacks Estimate of $6,660 million. However, the top line plunged from the year-ago figure of $7,396 million.

Segmental Information

Upstream: Revenues from the segment came in at C$3,707 million, increasing from second-quarter 2018’s C$2,971 on higher output levels. As such, the segment swung to a profit of C$985 million against C$6 million loss in the year-ago period. Favorable tax impacts to the extent of C$689 million aided the results.

Net production volumes during the quarter under review averaged 354,000 barrels of oil equivalent per day (Boe/d) compared with 296,000 Boe/d in the year-ago period. Total oil and NGL output amounted to 331,000 barrels per day (BPD) versus 276,000 BPD in second-quarter 2018. Net oil and NGL output from Kearl and Cold Lake totaled 140,000 bpd and 1108,000 bpd, respectively. Syncrude output averaged 69,000 BPD, rising 50% from the year-ago quarter on stronger asset reliability. Net natural gas production came in at 139 million cubic feet per day (Mcf/d), higher than 122 Mcf/d in the prior-year quarter.

Bitumen (accounting for 75% of output) price realizations totaled 57.19 a barrel, up from $48.90 in the year-ago quarter. The company received average realized price of C$79.96 per barrel of synthetic oil compared with the year-ago quarter’s C$86.31. For conventional crude oil, it received C$58.20 per barrel compared with the year-ago figure of C$74.55. Prices of NGL and gas declined on a y/y basis to C$16.78 a barrel and C$1.94 per thousand cubic feet, respectively.

Downstream: Revenues from the downstream segment totaled C$6,881 million, declining from $7,221 million in second-quarter 2018. The segmental net income totaled C$258 million, increasing from C$201 million owing to lower net turnaround impacts.

Refinery throughput in second-quarter 2019 averaged 344,000 BPD, depicting a decline from the prior-year level of 363,000 BPD. Capacity utilization came in at 81% versus 86% in the corresponding quarter of the last year. Petroleum product sales were 477,000 BPD compared with the prior-year level of 510,000 BPD.

Chemical: The segment generated revenues of C$314 million versus C$402 million in second-quarter 2018. Net income from the segment was recorded at C$38 million compared with the year-ago figure of C$78 million. The decline came on the back of lower industry margins.

Total Costs & Capex

Total expenses during the quarter were C$8,532 million, lower than the year-ago level of C$9,279 million.

In the quarter under review, the company’s total capital and exploration expenditures were C$429 million, higher than the year-ago level of C$284 million. Of the total expenditure in second-quarter 2019, 70% was allotted to the upstream segment.

Financial Performance

Imperial Oil generated cash flow from operating activities of C$1,029 million in the quarter under review. The figure improved from the year-ago level of C$859 million.

Importantly, in the quarter under review, it paid back C$515 million to its shareholders through dividends and share buybacks. 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 9.8 million shares in the quarter for C$368 million, including those bought from Exxon Mobil.

As of Jun 30, the company held C$1,087 million in cash and cash equivalents. Its long-term debt amounted to C$5,168 million, representing a debt-to-capital ratio of around 17.1%.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -29.63% due to these changes.

VGM Scores

At this time, Imperial Oil has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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