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Petrobras (PBR) Stock Climbs 8.5% Following Q2 Earnings Beat

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The stock of Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras PBR has gained around 8.5% since its second-quarter earnings announcement on Aug 5. Apart from top and bottom-line beats, investors were encouraged by its sharp debt reduction and turnaround from the year-ago loss.

What Did Petrobras’ Earnings Unveil?

Petrobras announced second-quarter earnings per ADS of $1.18, beating the Zacks Consensus Estimate of 92 cents and turning around from the year-ago loss of 38 cents. The outperformance can be attributed to the rally in oil prices, strong downstream results and favorable currency effects.

Recurring net income, which strips one-time items, came in at $7,717 million against a loss of $2,536 million a year earlier. Petrobras’ adjusted EBITDA rose to $11,750 million from $4,785 million a year ago.

Petrobras, whose board approved early distribution of dividends, reported revenues of $20,982 million that overshot the Zacks Consensus Estimate of $19,169 and skyrocketed from the year-earlier sales of $9,481 million.

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 and EPS Surprise

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

Coming back to earnings, let's take a deeper look at the recent performances of 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 second quarter reached 2,796 thousand barrels of oil equivalent per day (MBOE/d) — some 80% liquids — edging down from 2,802 MBOE/d in the same period of 2020. Compared with the year-ago quarter, Brazilian oil and natural gas production — constituting 98.5% of the overall output — remained essentially flat at 2,754 MBOE/d. The impact of the continued ramp-up of the P-68 platforms was offset by scheduled stoppages of the P-58 (Jubarte field).

In the April to June period, the average sales price of oil in Brazil soared 173.4% from the year-earlier period to $65.57 per barrel. The sharp increase in crude prices had a positive effect on the upstream segment’s earnings.

Overall, the segment’s revenues improved to $13,509 million in the quarter under review from $5,165 million in the year-ago period. As far as the bottom line is concerned, despite a slight uptick in pre-salt lifting costs (which rose 1.2% from the second quarter of 2020 to $4.22 per barrel), the upstream unit recorded a net income of $4,948 million jumping from the second-quarter 2020 profit of $1,187 million.

Downstream (or Refining, Transportation and Marketing): Revenues from the segment totaled $19,007 million, more than doubling from the year-ago figure of $8,261 million. Petrobras' downstream income of $1,673 million turned around from the year-ago loss of $566 million, primarily due to strong domestic fuel margins.

Costs

During the period, Petrobras’ sales, general and administrative expenses totaled $1,346 million, down 12.4% from the year-ago period. Selling expenses also declined from $1,246 million to $1,086 million. But rise in exploration costs, research and development expenses, together with $109 million in other expenses (compared to other income of $499 million a year ago) meant that total operating expenses rose to $1,929 million from $1,416 million in the second quarter of 2020. Nevertheless, the company’s operating income of $8,895 million was up significantly from $2,001 in the year-ago period on 121.3% higher sales revenues.

Financial Position

During the three months ended Jun 30, 2021, Petrobras’ capital investments and expenditures totaled $2,364 million, compared with $1,937 million in the prior-year quarter.

Importantly, the company generated positive free cash flow for the 25th consecutive quarter, with the metric coming at $9,329 million, surging from $3,012 million recorded in last year’s corresponding period.

At the end of the second quarter, Petrobras had a net debt of $53,262 million, decreasing from $71,222 million a year ago and $58,424 million as of Mar 31, 2021. The company ended the quarter with cash and cash equivalents of $9,822 million.

Meanwhile, Petrobras’ net-debt-to-trailing-12-months EBITDA ratio improved to 1.49 from 2.34 in the previous year.

Zacks Rank & Stock Pick

Petrobras currently carries a Zacks Rank #1 (Strong Buy).

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

Apart from Petrobras, investors interested in the energy sector might look at Ovintiv OVV, EOG Resources EOG and APA Corporation APA, each presently flaunting a Zacks Rank of 1.

Ovintiv has an expected earnings growth rate of 1,177.14% for the current year.

EOG Resources has an expected earnings growth rate of 397.95% for the current year.

APA has an expected earnings growth rate of 389.81% for the current year.


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