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Cheniere (LNG) Q4 Earnings Lag Amid High Costs, Sales Up Y/Y

Zacks Equity Research
3 Zacks 1 Rank Uptrends

Cheniere Energy, Inc. LNG reported fourth-quarter 2018 net earnings per share of 26 cents, missing the Zacks Consensus Estimate of 36 cents. The weaker-than-expected results can be attributed to high costs incurred during the quarter. The bottom line also deteriorated from the year-ago income of $0.54 per share.

On an encouraging note, the U.S. gas exporter’s quarterly revenues increased 36.5% to $2,383 million from $1,746 million recorded in the year-ago quarter. Further, the top line surpassed the Zacks Consensus Estimate of $1,780 million in the quarter under review. Its adjusted EBITDA rose to $634 million from $523 million in fourth-quarter 2017.

During the quarter, the company shipped 80 cargoes from the Sabine Pass liquefied natural gas terminal in Louisiana, reflecting an increase of 14% from a year ago. Total volumes of LNG exported in the reported quarter were 285 trillion British thermal units (TBtu) compared with 252 TBtu in the year-ago period.

Costs & Expenses

Overall costs and expenses rose 43% to $1,867 million from the corresponding quarter last year. The increase is mainly attributed to higher cost of sales that jumped to $1,519 million from $980 million in the prior-year quarter, along with a 13.9% year-over-year increase in operating and maintenance expenses to $156 million. Depreciation and amortization expenses decreased from $116 million a year ago to $104 million in the reported quarter.

Balance Sheet

As of Dec 31, 2018, Cheniere had approximately $981 million in cash and cash equivalents. It recorded $28,179 million in net long-term debt compared with the prior-year level of $25,336. The debt-to-capitalization ratio of the company stands at 93.6%.

2019 Guidance Reiterated

Cheniere has reiterated its guidance for 2019. It anticipates adjusted EBITDA within $2,900-$3,200 million, with distributable cash flow expected between $600 million and $800 million.

Progress Report

Sabine Pass Liquefaction Project (SPL): Sabine Pass is North America’s first large-scale liquefied gas export facility. Cheniere intends to construct up to six trains at the Sabine Pass, with each train expected to have a capacity of about 4.5 million tons per annum (Mtpa). Notably, expected run-rate LNG production is up from 4.3-4.6 Mtpa per train to 4.4-4.9 Mtpa. While Trains 1, 2, 3 and 4 are functional; Train 5 is currently undergoing commissioning. Train 6 is being commercialized and has secured the necessary regulatory approvals. The company expects the fifth train to come online in the first quarter of 2019.

Corpus Christi Liquefaction Project (CCL): Cheniere’s Corpus Christi LNG project, under which the company intends to develop three trains, is expected to come online in 2019. Each train is expected to have a nominal production capacity of 4.5 Mtpa of LNG. Notably, Train 1 and 2 are undergoing commissioning, whereas Train 3 is under construction.

Corpus Christi Expansion Project: Cheniere intends to develop seven midscale liquefaction trains adjacent to the CCL Project. The total production capacity of these trains is expected to be approximately 9.5 Mtpa.

Zacks Rank & Key Picks

Cheniere currently carries a Zacks Rank #3 (Hold).

Meanwhile, investors interested in the energy space may opt for some better-ranked players that include Repsol SA REPYY, Jones Energy, Inc. JONE and YPF Sociedad Anonima YPF, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Repsol’s 2019 earnings are expected to increase 13.69% on a year-over-year basis.

Jones’ 2019 earnings are expected to grow 18.95% on a year-over-year basis.

YPF Sociedad delivered average positive earnings surprise of 210.38% in the trailing four quarters.

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