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Shell (RDS.A) Gears Up for Q3 Earnings: What's in Store?

Zacks Equity Research
·5 min read

Royal Dutch Shell PLC RDS.A is set to report third-quarter 2020 results on Thursday Oct 29, before the opening bell.

The current Zacks Consensus Estimate is pegged at a loss of 6 cents for the to-be-reported quarter.

Against this backdrop, let’s delve into the factors that might have impacted the company’s September-quarter performance.

Key Q3 Predictions

Upstream

The upstream production is projected between 2,150 and 2,250 thousand barrels of oil equivalent per day (boe/d) after adjusting the impact of hurricanes in the Gulf of Mexico. The year-ago output was recorded at 2,606 thousand boe/d. However, Shell had earlier predicted its third-quarter 2020 upstream volumes to be 2,100-2,400 thousand boe/d. Taking into account the lower realized liquid prices, Shell expects to incur adjusted loss from this segment. 

Oil Products

Shell estimates third-quarter oil product sales in the band of 4,000-5,000 thousand barrels per day. This indicates a 25.7% decrease from the year-earlier quarter’s reported number due to a dramatic drop in demand stemming from the adverse COVID-19 impact. It is assumed that the upper end of the estimate will be met. The Netherlands-based company anticipates its refinery availability between 64% and 68%.

Chemicals

The company’s chemical sales volumes are predicted between 3,700 and 4,000 thousand tons with plant utilization of 79-83%. Further, Shell expects adjusted earnings to be affected to the tune of $100 million due to weak provisions and maintenance activities.

Integrated Gas

The company expects third-quarter LNG liquefaction volumes to contract to 7.9-8.3 million tonnes from its previous year’s quarterly output of 8.95 million tonnes. Moreover, its segmental production is forecast in the 820-860 thousand boe/d band, down from the year-earlier period’s output of 957 thousand boe/d.

What Does Our Model Say?

The proven Zacks model does not conclusively predict an earnings beat for Shell this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. But that’s not the case here as elaborated below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Shell has an Earnings ESP of 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at a loss of 6 cents per share each.

Zacks Rank: Shell currently carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP in the combination makes surprise prediction difficult for the stock this earnings season.

Highlights of Q2 Earnings & Surprise History

Europe’s largest oil company Shell reported second-quarter earnings per ADS (on a current cost-of-supplies basis excluding items, reflecting the market’s preferred measure) of 16 cents. The Zacks Consensus Estimate was of a loss of 31 cents. This outperformance reflects strong trading gains.

However, the bottom line compared unfavorably with the year-ago profit of 84 cents. This underperformance mainly emanated from the coronavirus-induced commodity price collapse.

Shell reported revenues of $32.5 billion, which were 64.6% below second-quarter 2019 sales of $91.8 billion.

As far as its earnings surprises are concerned, this Hague-based company’s bottom line trumped the Zacks Consensus Estimate in three of the trailing four quarters and missed the same in the remaining period, the average surprise being 52.41%. This is depicted in the graph below:

Royal Dutch Shell PLC Price and EPS Surprise

Royal Dutch Shell PLC Price and EPS Surprise
Royal Dutch Shell PLC Price and EPS Surprise

Royal Dutch Shell PLC price-eps-surprise | Royal Dutch Shell PLC Quote

Stocks to Consider

While earnings outperformance looks uncertain for Shell, here are some firms worth considering from the energy space on the basis of our model, which shows that these have the perfect combination of ingredients to deliver a positive surprise this reporting cycle:

Parsley Energy, Inc. PE has an Earnings ESP of +18.86% and is a #3 Ranked player, currently. The company is scheduled to release earnings on Oct 28.

Oceaneering International, Inc. OII has an Earnings ESP of +33.91% and a Zacks Rank of 3, currently. The company is scheduled to release earnings on Oct 28. You can see the complete list of today’s Zacks #1 Rank stocks here.

Concho Resources Inc. CXO has an Earnings ESP of +5.60% and is Zacks #3 Ranked, currently. It is scheduled to release earnings on Oct 28.

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