A month has gone by since the last earnings report for Suncor Energy (SU). Shares have added about 1.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Suncor Energy due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Suncor Posts Lackluster Q4 Results
Suncor Energy reported fourth-quarter 2018 operating earnings per share of 27 cents, lagging the Zacks Consensus Estimate of 38 cents. The bottom line also deteriorated from the prior-year earnings of 75 cents per share. The weaker-than-expected results can be attributed to weakness in oil prices and widening Canadian differentials, which impacted the upstream segment of the company to a large extent.
Quarterly operating revenues of the Canadian integrated giant totaled $6,506 million, lagging the Zacks Consensus Estimate of $8,130 million. Moreover, the top line decreased from $8,569 million in the year-ago quarter.
Total upstream production in the reported quarter was 831,000 barrels of oil equivalent per day (Boe/d), up from the prior-year level of 736,400 Boe/d. This marks a record quarterly production, depicting a year-over-year increase of 12.8%. The increase in output came on the back of robust operations in Fort Hills, Hebron and Syncrude projects.
Notably, Fort Hills production came in at 98,500 Bbl/d in the quarter under review, representing an impressive utilization of around 94%.
Production from Syncrude operations increased to 209,600 Bbl/d from 174,400 Bbl/d in the year-ago quarter, setting a new record. The improved output came on the back of additional interests acquired by the company in the project along with stronger reliability. In the quarter under review, upgrader reliability at Syncrude was 101%, higher than 94% in the year-ago quarter.
Oil Sands operations volume was 432,700 barrels per day (Bbl/d) compared with 446,800 Bbl/d in the year-ago quarter. The decrease can be attributed to the maintenance activities at Upgrader 2. As a result, upgrader utilization came in at 79% compared with 93% in the year-ago quarter. However, operating costs per barrel increased to C$24.50 in the quarter under review from C$24.20 in the corresponding quarter of 2017.
Suncor’s Exploration and Production segment (consisting of International, Offshore and Natural Gas segments) produced 90,200 Boe/d compared with 115,200 Boe/d in the prior-year quarter. The results were impacted by the temporary suspension of operations in Canada’s East Coast and unplanned outage at Buzzard. However, the results were partially offset by increased output from Hebron.
The upstream unit recorded an operating loss of C$285 million vis a vis earnings of C$846 million in the prior-year quarter amid weakness in the crude prices.
Operating earnings from the downstream unit totaled C$723 million compared with the year-ago figure of C$746 million due to FIFO inventory losses resulting from sharply lower feedstock costs. However, the company’s refined product sales of 530,600 Bbl/d increased from the prior-year level of 526,800 Bbl/d on higher throughput and demand. Crude throughput came in at 467,900 Bbl/d in the fourth quarter compared with 432,400 Bbl/d in the year-ago period. Also, refinery utilization came in at 101% compared with 94% in the year-ago quarter. Refining margin was C$41.50 a barrel vis-a vis C$31.95 in the year-ago quarter.
Total expenses in the reported quarter increased to C$9,057 million from C$7,129 million in the year-ago quarter. The increase in total expenses is mainly attributed to higher costs related to the purchase of oil, along with a rise in operating and financial expenses.
Balance Sheet & Capital Expenditure
As of Dec 31, 2018, Suncor had cash and cash equivalents of C$2,221 million, and total long-term debt of C$13,890 million. The total debt-to-capitalization ratio was approximately 24%. The company incurred capital expenditure of C$1,141 million in the quarter under review.
Dividend and Share Repurchase
Cash flow from operating activities came in at C$3,040 million in the fourth quarter, up 10.3% from the prior-year figure.
Suncor returned C$574 million to its shareholders through dividends and bought back C$1,166 million of outstanding shares in fourth-quarter 2018. The company expects its existing repurchase program of C$3 billion to be completed by February 2019.
On a further encouraging note, Suncor increased its quarterly dividend payout to $0.42 per share, up 17% on a year-over-year basis. This marks the 17th consecutive year of annualized dividend payments. The company approved another buyback program of up to C$2 billion to boost its shareholders’ confidence.
Suncor expects 2019 total production in the band of 780,000-820,000 Boe/d. Production from oil sands is estimated within 410,000-440,000 bbls/d. Production from Syncrude is expected in the band of 160,000-180,000 bbls/d. Fort Hills’ output is expected within 85,000-95,000 bbls/d. Total refinery throughput is projected in the range of 430,000-450,000 barrels per day, with refinery utilization of 93-97%. For 2019, capex is expected in the band of C$4.9-C$5.6 billion.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -40% due to these changes.
At this time, Suncor Energy has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Suncor Energy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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