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Petrobras (PBR) Q3 Earnings Beat, Revenues Miss, FCF Soars

Zacks Equity Research

Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras PBR announced third-quarter earnings per ADS of 36 cents, beating the Zacks Consensus Estimate of 28 cents and the year-ago quarter profit of 26 cents. Adjusted EBITDA rose to $8,209 million from $7,559 million a year ago. The outperformances could be attributed to impressive production growth and lower lifting costs.

However, the Brazilian state-run energy giant’s revenues of $19,416 million missed the Zacks Consensus Estimate of $20,307 million and fell from the year-earlier sales of $22,547 million. The unfavorable comparisons stem from lower average realized commodity prices and decline in oil product sales.

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

Let's take a deeper look at the recent performances from the company's two main segments: Upstream (Exploration & Production) and Downstream (or Refining, Transportation and Marketing).

Upstream: The Rio de Janeiro-headquartered company’s total oil and gas production during the third quarter reached 2,878 thousand barrels of oil equivalent per day (MBOE/d) – 79% liquids – up from 2,513 Mbbl/d in the same period of 2018.

Compared with the third quarter of 2018, Brazilian oil and natural gas production – constituting 97% of the overall output – increased 16.5% to 2,794 MBOE/d. The improvement was driven by ramp-up of new projects that began operations in 2018 and 2019.

In the July to September period, the average sales price of oil in Brazil slumped 17.2% from the year-earlier period to $58.10 per barrel. While the falling crude prices reduced upstream segment earnings significantly, it was partly offset by higher production. A tight leash on pre-salt lifting costs, which fell 22% from the third quarter of 2018 to a record $5.03 per barrel, also provided some support.

Overall, the segment’s revenues edged down to $12,551 million in the quarter under review from $13,115 million in the year-ago period. Moreover, profits fell to $2,979 million from the year-ago figure of $3,120 million.

Downstream: Revenues from the segment totaled $17,124 million, lower than the year-ago figure of $19,312 million. Petrobras' downstream earnings tanked to $106 million from the year-ago level of $903 million, owing to weaker domestic oil products sales margins and inventory turnover effects.

Costs

During the period, Petrobras’ sales, general and administrative expenses stood at $1,759 million, 2.7% lower than the year-ago period. Selling expenses also fell by 3.5% to $1,252 million. Consequently, total operating expenses declined by 8.2% year over year to $4,069 million.

Financial Position

During the three months ended Sep 30, 2019, Petrobras’ capital investments and expenditures totaled $2,612 million, 33.2% lower than the $3,908 million incurred in the year-ago period.

Importantly, the company generated positive free cash flow for the 18th consecutive quarter, with the metric surging to $6,480 million from $2,049 million recorded in last year’s corresponding period. This was primarily driven by proceeds from the sale of BR Distribuidora – the company’s former fuel distribution segment.

Meanwhile, adjusted EBITDA rose to $8,209 million from the year-ago figure of $7,559 million.

At the end of the quarter, Petrobras had a net debt of $75,419 million, increasing from $72,888 million a year ago. The company ended the third quarter with cash and cash equivalents of $13,179 million.

On a positive note, Petrobras managed to trim its net debt to the trailing 12 months EBITDA ratio to 2.40 from 2.62 in the previous year.

Zacks Rank & Key Picks

Petrobras carries a Zacks Rank #3 (Hold).

Meanwhile, investors interested in the energy space could look at some better options like Phillips 66 PSX, Murphy USA Inc. MUSA and SilverBow Resources, Inc. SBOW that carry a Zacks Rank #2 (Buy).

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

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