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Eni (E) Rallies More Than 7% Despite Q3 Earnings Decline

Zacks Equity Research
·5 min read

Eni SpA E reported third-quarter 2020 adjusted loss from continuing operations of 10 cents per American Depository Receipt (ADR) versus the year-ago quarter’s profit of 49 cents.

Total revenues in the quarter totaled $12,296 million, down from $18,858 million a year ago.

The weak quarterly results can be blamed on lower production volumes and average realized prices of liquids and natural gas. The negative was however partially offset by marginal recovery in retail consumption.

Despite the weaker results, the Italian energy giant’s stock price rose more than 7% since the earnings announcement on Oct 28. It’s likely that investors cheered the energy giant’s focus on expanding its green energy business.

Eni SpA Price, Consensus and EPS Surprise

 

Eni SpA Price, Consensus and EPS Surprise
Eni SpA Price, Consensus and EPS Surprise

Eni SpA price-consensus-eps-surprise-chart | Eni SpA Quote

Operational Performance

The company operates through four business segments — Exploration & Production, Global Gas & LNG Portfolio, Refining & Marketing and Chemicals and EGL, Power, Renewables.

Exploration & Production

Total oil and gas production in the third quarter was 1,701 thousand barrels of oil equivalent per day, down 10% year over year.

Liquids production was 817 thousand barrels per day (MBbl/d), down 9% from the year-ago level of 893 MBbl/d. Moreover, natural gas production dropped 13% year over year to 4,694 million cubic feet per day.

Average realized price of liquids was $39.64 per barrel, down 30% from $56.90 reported a year ago. Moreover, realized natural gas price was $3.44 per thousand cubic feet, down 23% from $4.49 a year ago.

Lower realizations of average liquids and natural gas prices along with a decline in hydrocarbon production volumes hurt the company’s Exploration & Production segment. The segment reported a profit of €515 million, down from €2,141 million recorded in the September quarter of 2019.

Global Gas & LNG Portfolio

The company’s worldwide sales of natural gas in the September quarter was recorded at 15.98 billion cubic meters (bcm), down 5% year over year.

Notably, the integrated energy major’s Global Gas & LNG Portfolio business segment reported adjusted operating earnings of €64 million, representing a decline of 7% year over year. The underperformance was owing to unfavorable trading environment of gas and LNG.

Refining & Marketing and Chemicals

In the September quarter, total refinery throughputs were recorded at 6.11 million tonnes (mmtonnes), down 21% year over year. Also, Eni’s wholesale sales in Europe fell 22% year over year to 2.21 mmtonnes. However, petrochemical product sales improved 1% year over year to 1.10 mmtonnes in the third quarter of 2020.

Notably, in the quarter under review, the segment reported an adjusted profit of €21 million, down 86% year over year primarily owing to lower refinery throughputs in Italy.

EGL, Power, Renewables

Retail gas sales, managed by Eni gas e luce (EGL), declined 11% year over year to 0.66 bcm, representing the pandemic-induced economic downturn, partially negated by marginal recovery in retail consumption. However, retail power sales improved 12% year over year, thanks to a growing base of retail customers. Notably, EGL is an energy retail company which is controlled entirely by Eni.

Power sales in the open market, under the Power & Renewables business, declined 10% year over year owing to the downturn in economic activities.

Overall, from the EGL, Power, Renewables business unit, the company reported profit of €57 million, reflecting a massive year-over-year improvement of 280%.

Financials

As of Sep 30, Eni had long-term debt of €23,156million, and cash and cash equivalents of €6,879million. Its debt-to-capitalization was 42.8%.

In the reported quarter, net cash generated by operating activities amounted to €1,456 million. Capital expenditure totaled €889 million.

Outlook

For 2020, the company is planning for investment optimizations and cost optimizations of €2.6 billion and €1.4 billion, respectively. The energy giant also intends to lower capital investments by €2.4 billion in 2021. Importantly, the company intends to invest a total of €800 million of additional capital in 2022-2023 mainly on bio-refineries and renewables.

Eni, however, reiterated its 2020 production projection at 1.72-1.74 MBoE/D.

Zacks Rank & Stock to Consider

The company currently has a Zacks Rank #3 (Hold). Meanwhile, a few better-ranked players in the energy space include Sunoco LP SUN and Abraxas Petroleum Corporation AXAS and Antero Resources Corporation AR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sunoco has seen upward estimate revisions for its 2020 bottom line in the past 30 days.

Abraxas has witnessed upward estimate revisions for its 2020 bottom line in the past 30 days.

Antero has seen upward estimate revisions for 2020 bottom line in the past 30 days.

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Sunoco LP (SUN) : Free Stock Analysis Report
 
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