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Petrobras (PBR) Q1 Earnings Miss Even as Lifting Costs Drop

Zacks Equity Research

Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras PBR announced first-quarter earnings per ADS of 6 cents, missing the Zacks Consensus Estimate by a penny and below the year-ago profit of 16 cents. The unfavorable comparison primarily stems from lower average realized commodity prices.

On a somewhat bullish note though, Petrobras’ adjusted EBITDA rose to $8,581 million from $7,294 million a year ago on significantly lower lifting costs.

Meanwhile, the company’s revenues of $17,143 million went past the Zacks Consensus Estimate of $14,347, boosted by impressive production growth. However, the figure fell from the year-earlier sales of $18,803 million.

Petrobras, one of the largest oil and gas firms in the world, warned shareholders that there could be "permanent effects" from the economic turmoil arising out of the coronavirus pandemic. The company also believes that the full impact of the contagion and the oil price slump on its financial results will be felt more acutely in the upcoming quarters.

The company is undertaking a comprehensive review of its upstream portfolio with stress on return on investment and capital discipline. Energy companies worldwide have slashed their 2020 capital budget to weather the oil market rout. Top U.S. shale producers including Pioneer Natural Resources Company PXD, EOG Resources, Occidental Petroleum to oil majors ExxonMobil XOM and Chevron CVX have all cut their capital budget for this year.
 

Petroleo Brasileiro S.A. Petrobras Price, Consensus and EPS Surprise

 

Petroleo Brasileiro S.A. Petrobras Price, Consensus and EPS Surprise

Petroleo Brasileiro S.A. Petrobras price-consensus-eps-surprise-chart | Petroleo Brasileiro S.A. Petrobras Quote

Coming back to the earnings, let's take a deeper look at the recent performances from Petrobras’ two main segments: Upstream (Exploration & Production) and Downstream (or Refining, Transportation and Marketing).

Upstream: The Rio de Janeiro-headquartered company’s average oil and gas production during the first quarter reached 2,909 thousand barrels of oil equivalent per day (MBOE/d) – 80% liquids – up from 2,538 MBOE/d in the same period of 2019.

Compared with the first quarter of 2019 Brazilian oil and natural gas production – constituting 98% of the overall output – increased 16.1% to 2,856 MBOE/d. The improvement was driven by ramp-up of new projects that began operations in 2018 and 2019.

In the January to March period, the average sales price of oil in Brazil fell 15.4% from the year-earlier period to $49.96 per barrel. The falling crude prices had a negative effect on upstream segment earnings, which was partly offset by higher production.

Overall, the segment’s revenues edged down to $10,877 million in the quarter under review from $11,384 million in the year-ago period. As far as the bottom line is concerned, even a tight leash on pre-salt lifting costs - which fell 33.4% from the first quarter of 2019 to $4.52 per barrel – was unable to provid support. In fact, the upstream unit recorded a net loss of $5,804 million as against the first-quarter 2019 income of $2,690 million.

Downstream: Revenues from the segment totaled $15,480 million, lower than the year-ago figure of $16,135 million. Worse, Petrobras' downstream loss of $702 million contrasted with the year-ago profit of $506 million, primarily due to unfavorable inventory turnover effects plus lower sales volumes of diesel and gasoline. These factors were partly offset by higher exports and improved domestic oil products margins. In particular, the Rio de Janeiro-headquartered company’s oil exports reached a landmark of 1 million barrels per day in April. This was mainly on account of revival in demand from Chinese refineries.

Costs

During the period, Petrobras’ sales, general and administrative expenses stood at $1,746 million, up 19% from the year-ago period. Selling expenses also shot up – from $903 million to $1,335 million. Further, the company incurred a $13,371 million impairment charge. Consequently, total operating expenses surged to $15,691 million from $2,999 million in the year-ago period. This meant that the company reported an operating loss of $8,427 million compared with a profit of $3,591 million in the first quarter of 2019.

Financial Position

During the three months ended Mar 31, 2020, Petrobras’ capital investments and expenditures totaled $2,439 million, compared with $2,298 million in the prior-year quarter.

Importantly, the Zacks Rank #3 (Hold) company generated positive free cash flow for the 20th consecutive quarter, with the metric surging to $5,911 million from $3,132 million recorded in last year’s corresponding period.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

At the end of the first quarter, Petrobras had a net debt of $73,131 million, decreasing from $95,525 million a year ago and $78,861 million as of Dec 31, 2019. The company ended the quarter with cash and cash equivalents of $15,468 million.

Meanwhile, Petrobras’ net debt to trailing twelve months EBITDA ratio improved to 2.15 from 3.10 in the previous year.

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