It has been about a month since the last earnings report for Imperial Oil (IMO). Shares have lost about 5.8% 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 Q3 Earnings Beat on Higher Realized Prices
Imperial Oil reported third-quarter 2018 earnings per share of 75 cents, beating the Zacks Consensus Estimate of 67 cents, supported by higher profit levels from all the segments. The bottom line depicts a significant rise from the year-ago figure of 35 cents.
During the quarter under review, the company generated $7,447 million in revenues, missing the Zacks Estimate of $8,706 million due to lower net liquid production. The top line, however, surged from the year-ago figure of $5,711 million, primarily owing to higher realized commodity prices.
Importantly, in the quarter under review, it paid back C$573 million to its shareholders through dividends and share repurchases. The company bought back around 10 million shares in the quarter for C$418 million.
Aspen Project FID
Imperial Oil recently declared that it has come up with a final investment decision (FID) for its Aspen project. Production from the site is expected around 75,000 barrels of bitumen per day. Construction work on the project is expected to commence in the last quarter of 2018 and production from the same will likely begin in 2022. The project is estimated to cost around C$2.6 billion.
Upstream: Production volumes during the quarter under review averaged 393,000 barrels of oil equivalent per day (Boe/d) compared with 390,000 Boe/d in the year-ago quarter. Notably, in the quarter, the company recorded gross production of 244,000 barrels per day (bpd) from its Kearl assets, representing 20% upside from its last record.
The company received average realized price of C$89.70 per barrel of synthetic oil compared with the year-ago quarter’s C$61.14. For conventional crude oil, it received C$74.02 per barrel compared with the year-ago figure of C$49.03.
Revenues from the segment came in at C$3,262 million, up from the third-quarter 2017’s C$2,262. As such, segmental income in the quarter was recorded at C$222 million, higher than the year-ago period’s $62 million.
Downstream: Refinery throughput in the third quarter of 2018 averaged 388,000 bpd, depicting a modest increase from the prior-year level of 385,000 bpd. Capacity utilization stood at 92% versus 91% in the corresponding quarter of the last year.
Petroleum product sales stood at 516,000 bpd compared with the prior-year level of 500,000 bpd.
Revenues from the downstream segment totaled C$7,330 million, up from $5,460 million in the third quarter of 2017. Consequently, the segmental net income skyrocketed to C$502 million from $292 million in the year-ago period.
Chemical: The segment generated revenues of C$408 million versus C$324 million in the third quarter of 2017.
Net income from the segment was recorded at C$69 million compared with the year-ago figure of C$52 million. The improved results came on the back of stronger polyethylene pricing and advantaged feedstocks.
Cost and Expenses
Total expenses in the quarter came in at C$8,706 million, higher than the year-ago level of C$6,662 million. The Upstream segment was primarily responsible for the increase in expenses.
In the quarter under review, the company’s total capital and exploration expenditures came in at C$376 million, higher than the year-ago quarter’s C$159 million. Of the total expenditure in third-quarter 2018, 68.4% was allotted to Upstream segment.
As of Sep 30, Imperial Oil held C$1,148 million in cash and cash equivalents. Its long-term debt amounted to C$5,188 million, representing a debt-to-capital ratio of around 17.8%.
Imperial Oil generated cash flow from operating activities of C$1,207 million in the quarter under review. It was not only up from C$837 million in the third quarter of 2017, but also highest in the last four years.
For full-year 2018, the company’s total capital expenditure is expected in the range of C$1.3-C$1.4 billion.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month. The consensus estimate has shifted -21.67% due to these changes.
At this time, Imperial Oil has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
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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