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Petrobras (PBR) Stock Up on Debt Cut Since Q1 Earnings Miss

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The stock of Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras PBR has gained around 17% since its first-quarter earnings announcement on Apr 27. While the company missed top and bottom-line estimates, investors were encouraged by its steep debt reduction and turnaround from the year-ago loss.

What Did Petrobras’ Earnings Unveil?

Petrobras announced first-quarter earnings per ADS of 3 cents, missing the Zacks Consensus Estimate of 26 cents. The unfavorably comparison primarily stems from lower production and a slight increase in pre-salt lifting costs.

However, the bottom line improved markedly from the year-ago loss of 10 cents on the back of higher oil prices, strong downstream results, favorable currency effects and the absence of impairments.

Recurring net income, which strips one-time items, came in at $231 million against a loss of $732 million a year earlier. Petrobras’ adjusted EBITDA rose to $8,906 million from $8,581 million a year ago.

Petrobras, which left its market-based fuel pricing policy unchanged, reported revenues of $15,698 million that undershot the Zacks Consensus Estimate of $17,333 and fell from the year-earlier sales of $17,143 million.

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).

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

Upstream: The Rio de Janeiro-headquartered company’s average oil and gas production during the first quarter reached 2,765 thousand barrels of oil equivalent per day (MBOE/d) — 79% liquids — down from 2,909 MBOE/d in the same period of 2020. Compared with the year-ago quarter, Brazilian oil and natural gas production — constituting 98% of the overall output — decreased 4.8% to 2,720 MBOE/d. The deterioration was due to the lesser number of production units in operation.

In the January to March period, the average sales price of oil in Brazil rose 14.7% from the year-earlier period to $57.32 per barrel. The increase in crude prices had a positive effect on upstream segment earnings, which were partly offset by lower production.

Overall, the segment’s revenues improved to $11,666 million in the quarter under review from $10,877 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 2.4% from the first quarter of 2020 to $4.63 per barrel), the upstream unit recorded a net income of $3,925 million against the first-quarter 2020 loss of $5,804 million

Downstream: Revenues from the segment totaled $13,973 million, lower than the year-ago figure of $15,480 million due to a dip in export volumes. However, Petrobras' downstream income of $1,255 million turned around from the year-ago loss of $702 million, primarily due to favorable inventory turnover effects plus lower operating expenses.

Costs

During the period, Petrobras’ sales, general and administrative expenses totaled $1,221 million, down 30.1% from the year-ago period. Selling expenses also declined from $1,335 million to $948 million. Consequently, total operating expenses fell sharply to $2,032 million from $15,691 million in the year-ago period. This meant that the company reported an operating income of $5,975 million against a loss of $8,427 million in the first quarter of 2020.

Financial PositionDuring the three months ended Mar 31, 2021, Petrobras’ capital investments and expenditures totaled $1,913 million, compared with $2,433 million in the prior-year quarter.

Importantly, the company generated positive free cash flow for the 24th consecutive quarter, with the metric coming at $5,592 million, slightly down from $5,911 million recorded in last year’s corresponding period.

At the end of the first quarter, Petrobras had a net debt of $58,424 million, decreasing from $73,131 million a year ago and $63,168 million as of Dec 31, 2020. The company ended the quarter with cash and cash equivalents of $11,964 million.

Meanwhile, Petrobras’ net debt to trailing 12 months EBITDA ratio improved to 2.03 from 2.15 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 Suncor Energy SU, Imperial Oil Limited IMO and PDC Energy PDCE. These companies also sport a Zacks Rank of 1.

Suncor Energy has an expected earnings growth rate of 248.18% for the current year.

Imperial Oil has an expected earnings growth rate of 347.56% for the current year.

PDC Energy has an expected earnings growth rate of 106.40% for the current year.

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Petroleo Brasileiro S.A. Petrobras (PBR) : Free Stock Analysis Report

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