Will Shell (SHEL) Earnings Top Expectations Again in Q2?
Shell plc SHEL is set to release second-quarter results on Jul 28. The current Zacks Consensus Estimate for the to-be-reported quarter is a profit of $2.91 per share.
Let’s delve into the factors that might have influenced the integrated energy behemoth’s results in the June quarter. But it’s worth taking a look at SHEL’s previous-quarter performance first.
Highlights of Q1 Earnings & Surprise History
In the last-reported quarter, Europe’s largest oil company beat the consensus mark on higher commodity prices. SHEL had reported earnings per ADS (on a current cost of supplies basis, excluding items — the market’s preferred measure) — of $2.38, above the Zacks Consensus Estimate of $2.12.
Shell beat the Zacks Consensus Estimate for earnings thrice in the last four quarters and missed in the other, resulting in an earnings surprise of 3.4%, on average. This is depicted in the graph below:
Shell PLC Unsponsored ADR Price and EPS Surprise
Shell PLC Unsponsored ADR price-eps-surprise | Shell PLC Unsponsored ADR Quote
Factors to Consider
Earlier this month, Shell released a preliminary report for the April-June period, which said that it expects a boost of around $1 billion to its bottom line in the second quarter from skyrocketing margins for gasoline and other energy products. The company released a preliminary report for the April-June period wherein the London-based energy biggie informed that higher profitability from crude and fuel sales could bring onboard between $800 million and $1.2 billion in the quarter.
The European energy major added that persistently high oil and natural gas prices boosted the value of its energy holdings. In this context, Shell should be able to reverse $3.5-4.5 billion in impairment charges that it took during the pandemic when coronavirus and associated demand deceleration wiped billions off the oil and natural gas asset value. At the same time, the company’s exit from Russia will cost it some $300 million to $350 million on its quarterly earnings.
Now, let’s dig into some other segment-wise selected items from that release.
Upstream
According to the latest update, Shell’s upstream production fell by 16% on a year-over-year basis in the second quarter of 2022 at the midpoint of the guidance. The supermajor is estimating its output in the range of 1,850-1,950 MBOE/d compared to 2,262 MBOE/d a year ago and 2,025 MBOE/d in the first quarter of 2022. Tax charges are expected to hurt earnings in the range of $2.8-3.4 billion.
Integrated Gas
Shell’s LNG liquefaction volumes are expected in the range of 7.4-8 million tons (following the removal of volumes associated with the Sakhalin facility in Russia), which translates into an improvement of around 2.8% year over year but a decrease of 3.8% sequentially. Shell’s integrated gas production is expected to increase to the range of 930,000-980,000 barrels of oil equivalent per day (BOE/d), or 955,000 BOE/d at the midpoint. It was 938,000 BOE/d in the second quarter of 2021 and 896,000 BOE/d in the March quarter.
Marketing
The midpoint of management’s marketing sales volume guidance equates to 2.5 million barrels per day, higher than the 2.372 achieved in the first quarter of 2022. Overall, segment profits are expected to be above first-quarter levels but in line with those achieved a year ago.
Chemicals & Products
Chemical sales may be in the range of 3 to 3.4 million tons but the company fears that inflation is expected to bring down margins from their first-quarter levels. However, refining profitability should be quite strong in the second quarter, with margins surging 174% sequentially due to global capacity shortage. The increase would boost earnings by $1 billion at the midpoint of SHEL’s estimates. Refinery and Chemicals utilization is projected within the ranges provided during the March quarter announcement. Finally, Shell sees robust earnings from oil and refined products trading in the second quarter though it will fail to match the first-quarter numbers.
Renewables and Energy Solutions
Adjusted earnings at this segment are expected in the range of $400-$900 million, reflecting a favorable market environment that would have buoyed trading and optimization margins for gas and power.
What Does Our Model Say?
The proven Zacks model does not conclusively show that Shell is likely to beat estimates in the second quarter. 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.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: SHEL has an Earnings ESP of 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $2.91 per share each. Investors should know that the Zacks Consensus Estimate for the second-quarter bottom line has been revised 3.6% downward in the past seven days.
Zacks Rank: Shell currently carries a Zacks Rank #1, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult this earnings season.
Stocks to Consider
While an earnings beat looks uncertain for SHEL, here are some firms from the energy space that you may want to consider on the basis of our model:
Range Resources Corporation RRC has an Earnings ESP of +9.47% and a Zacks Rank #1. The firm is scheduled to release earnings on Jul 25.
You can see the complete list of today’s Zacks #1 Rank stocks here.
RRC is valued at around $8.2 billion. The Zacks Consensus Estimate for the company’s 2022 earnings has been revised 11% upward over the past 60 days. Range Resources has surged around 95.5% in a year.
Liberty Energy Inc. LBRT has an Earnings ESP of +26.82% and a Zacks Rank #2. The firm is scheduled to release earnings on Jul 25.
For 2022, LBRT has a projected earnings growth rate of 168.6%. Valued at around $2.4 billion, Liberty Energy has lost around 1.7% in a year.
ExxonMobil XOM has an Earnings ESP of +8.94% and a Zacks Rank #2. The firm is scheduled to release earnings on Jul 29.
XOM topped the Zacks Consensus Estimate by an average of 1.3% in the trailing four quarters, though it experienced an 8% miss in Q1. ExxonMobil has gained some 51.9% in a year.
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