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Concho (CXO) Q2 Earnings Miss on Weak Fuel Prices, High Cost

Zacks Equity Research

Concho Resources Inc. CXO reported mixed second-quarter 2019 results, wherein earnings missed the Zacks Consensus Estimate, while revenues beat the same.

The Texas-based oil and gas producer posted earnings per share (excluding non-cash and special items) of 69 cents, lagging the Zacks Consensus Estimate of 74 cents. The underperformance can be attributed to high operating costs incurred in the quarter. Lower-than-expected realized prices (including derivatives impact) also impacted earnings. The metric came in at $36.02 per barrel of oil equivalent (Boe), lagging the consensus estimate of $37.44.

The bottom line also declined from $1.24 per share recorded in the prior-year period due to lower realized prices and massive impairment charges.

The Permian-focused player generated revenues of $1,127 million, topping the consensus mark of $1,117 million. The better-than expected revenues were driven by higher-than-anticipated production volumes. Precisely, the upstream player’s output of 328,681 barrels of oil equivalent per day (Boe/d) surpassed the Zacks Consensus Estimate of 322,444 Boe/d.

Further, the top line jumped 19.2% from the year-ago level of $945 million.  

Concho Resources Inc. Price, Consensus and EPS Surprise

Concho Resources Inc. Price, Consensus and EPS Surprise

Concho Resources Inc. price-consensus-eps-surprise-chart | Concho Resources Inc. Quote

Volume Analysis

Concho's average quarterly volume increased 43.5% year over year to 328,681 Boe/d. Total output exceeded the high end of the firm’s forecasted range of 316,000-322,000 Boe/d. 

Of the total volume, 62.6% consisted of liquids. Daily oil output increased 43.7% to 205,780 barrels and natural gas production totaled 737,407 thousand cubic feet (Mcf), up 43.2% year over year. The 2018 acquisition of RSP Permian led to the expansion of its position in Midland and Delaware Basins, thereby attributing to the production rise.

Realized Prices (Excluding Derivatives Effect)

The average realized natural gas price increased from $1.16 per Mcf in the year-ago quarter to $3.19. Average oil price realization came in at $56.02 per barrel, lower than $60.98 in the year-ago period. Overall, the company fetched $37.68 per Boe compared with $45.31 a year ago.

Operating Expenses & Income

Operating expenses in the quarter skyrocketed 106% to $1,532 million, resulting in operating loss of $405 million against a gain of $203 million in the year-ago period. A massive impairment charge of $868 million resulted in the surge in total costs. Notably, its production, exploration & depreciation, general & administrative, as well as gathering, processing & transportation expenses also marked an increase on a year-over-year basis. 

Dividend & Balance Sheet

Concho declared a quarterly dividend of 12.5 cents a share, payable on Sep 30, 2019 to its shareholders of record as of Aug 9.

As of Jun 30, Concho had a long-term debt of $4,350 million, representing a debt-to-capitalization ratio of 19.5%.

Guidance

Production for the third quarter is expected within 316,000-322,000 Boe/d. Concho expects weak natural gas and NGL price realizations in the third quarter, which may impact earnings. The company expects oil to constitute 63% of total production in the second half of 2019. Concho expects 2019 oil output to grow 27-31% y/y. Full-year capex budget is forecasted to be $2.9 billion.

Zacks Rank & Key Picks

Concho currently carries a Zacks Rank #3 (Hold). Some better-ranked players from the same industry are TC PipeLines, LP TCP, MPLX LP MPLX and Oasis Midstream Partners LP OMP, each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.   

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