Will Refining Gains Enhance Chevron's (CVX) Q1 Earnings?
It's earnings season again, and oil supermajor Chevron CVX is gearing up to release its first-quarter results on Apr 28. This time around, the company’s overall earnings performance is likely to get a boost from its downstream (or refining, chemicals and marketing) division. Investors should know that Chevron also has an upstream (or exploration and production) business, which produces oil and gas.
Though smaller of the two units, Chevron has extensive downstream operations with a refining network that can process 1.8 million barrels of crude oil daily. Apart from the United States, CVX has stakes in three large refineries in Singapore, South Korea and Thailand. The company is primarily involved in refining crude oil into fuels like gasoline and diesel, plus additives for lubricating oils and fuels.
Click here for a complete rundown of the company’s expected Q1 performance.
A Look at Chevron’s Downstream Performance in Q4
Chevron’s downstream segment recorded a profit of $1.8 billion, more than doubling last year’s figure of $760 million. The improvement underlined higher product sales margins, strong jet fuel demand following the continued easing of pandemic restrictions, and contribution from the Renewable Energy group acquisition.
Moreover, daily refined product sales clocked 2,677 thousand barrels (about 54% of which were international) compared to 2,483 thousand barrels in the same quarter last year. Finally, refinery inputs totaled 1,541 thousand barrels per day, up 3.8%.year over year.
Robust Margins to Boost Q1 Refining Income
CVX is expected to have reaped the reward of a better macro environment in its downstream (or refining) unit. With margins remaining healthy, the Zacks Rank #3 (Hold) company should see segment earnings surge year over year. Echoing Chevron’s strong downstream dynamics, the Zacks Consensus Estimate for the to-be-reported quarter’s income is projected at $1.6 billion. The number suggests a surge from the profit of $331 million reported in the year-ago quarter.
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While the profitability of the downstream segment is primarily dependent on the margins of the products produced, it also varies with the volume of products sold. With our consensus mark for the metric indicating year-over-year gains (2,557 thousand barrels per day versus 2,544) in the January-March period, CVX’s first-quarter earnings and cash flows are expected to have got a lift.
Overall Earnings & Revenue Projections
The Zacks Consensus Estimate for first-quarter earnings is pegged at $3.36 per share, suggesting no change from the prior-year quarter’s reported figure. For quarterly sales, the consensus mark of $47.6 billion suggests a decline of 12.4% from the year-earlier quarter’s reported number.
Important Energy Releases So Far
While we wait till Friday for CVX to come out with Q1 numbers, let’s take a look at some key energy releases so far.
SLB SLB, the largest oilfield contractor, announced first-quarter 2023 earnings of 63 cents per share (excluding charges and credits), which beat the Zacks Consensus Estimate of 61 cents. SLB recorded total revenues of $7.7 billion, outpacing the Zacks Consensus Estimate by 3.2%.
SLB’s robust quarterly earnings resulted from higher stimulation services across all onshore and offshore areas. The company foresees strong activities across the globe this year. In the Northern Hemisphere, SLB expects a seasonal recovery in the second quarter with capital expansion developments in the Middle East.
Another oil service biggie Baker Hughes BKR reported first-quarter adjusted earnings of 28 cents per share, brushing past the Zacks Consensus Estimate of 26 cents. The outperformance reflects higher contributions from BKR’s Oilfield Services and Equipment, and Industrial & Energy Technology business units.
Baker Hughes’ total orders from all business segments in first-quarter 2023 amounted to $7.6 billion, up 12% year over year. The company generated a free cash flow of $197 million in the reported quarter against a negative free cash flow of $105 million in the year-ago period.
Meanwhile, energy infrastructure provider Kinder Morgan KMI reported first-quarter adjusted earnings per share of 30 cents, a penny ahead of the Zacks Consensus Estimate. The bottom line was primarily aided by higher gathering and transport volumes. KMI’s board approved a quarterly cash dividend of 28.25 cents per share, indicating a 1.8% increase from the last payout.
As of Mar 31, 2023, Kinder Morgan reported $416 million in cash and cash equivalents. The company’s long-term debt amounted to $29.1 billion at the quarter-end. For 2023, KMI projects a net income of $2.5 billion and a dividend of $1.13 per share, suggesting an increase of 2% from the prior-year reported figure.
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