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Suncor Energy (SU) Down 4.2% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Suncor Energy (SU). Shares have lost about 4.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Suncor Energy due for a breakout? 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 drivers.

Suncor Posts Improved Y/Y Earnings

Suncor Energy posted operating earnings per share of 60 cents, lagging the Zacks Consensus Estimate of 69 cents.

However, the bottom line improved from the prior-year earnings 57 cents per share. The stronger y/y results can be attributed to higher contribution from both its upstream and downstream units.

Quarterly operating revenues totaled $7,549 million, lagging the Zacks Consensus Estimate of $8,149 million. The top line also decreased from $8,082 million in the year-ago quarter.

Upstream

Total upstream production in the reported quarter was 803,900 barrels of oil equivalent per day (Boe/d), up from the prior-year level of 661,700 Boe/d. The increase in output was backed by robust operations in Fort Hills, Hebron and Syncrude projects, partly offset by mandatory production cuts implemented by the Alberta government. The upstream unit recorded operating earnings of C$898 million vis-a-vis C$715 million in the prior-year quarter, thanks to stronger y/y output level.

Notably, Fort Hills production came in at 89,300 barrels per day (Bbl/d) in the quarter, higher than 70,900 Bbl/d recorded in the year-ago period on the back of ramped-up operations.

Production from Syncrude operations increased to 188,700 Bbl/d from 117,800 Bbl/d in the year-ago quarter on the back of improved asset reliability. In the quarter under review, upgrader reliability at Syncrude was 93%, higher than 58% a year ago.

Oil Sands operations volume was 414,200 Bbl/d compared with 358,900 Bbl/d in the year-ago quarter. Upgrader utilization improved to 86% from 69% in the year-ago quarter. Operating costs per barrel decreased to C$27.80 in the quarter under review from C$28.86 in the corresponding period of 2018.

Suncor’s Exploration and Production segment (consisting of International, Offshore and Natural Gas segments) produced 111,700 Boe/d compared with 114,100 Boe/d in the prior-year quarter. The results were impacted by lower output levels from the White Rose field and United Kingdom, partially offset by increased production from Hebron and Oda.

Downstream

Operating earnings from the downstream unit increased to C$677 million from the year-ago figure of C$671 million on the back of increased throughput and improving refining margins. Suncor recorded improved refinery margins and increasing refined product sales in the quarter under review. The company’s refined product sales of 508,100 Bbl/d increased from the prior-year level of 500,000 Bbl/d on higher refinery throughput and utilization levels. Refining margin was C$33.45 a barrel vis-a-vis C$30.25 in the year-ago quarter.

Crude throughput came in at 399,100 Bbl/d in the second quarter compared with 344,100 Bbl/d in the year-ago period. Also, refinery utilization came in at 86% compared with 74% in the year-ago quarter.

Expenses

Total expenses in the reported quarter declined to C$7,974 million from C$8,952 million in the year-ago period. The decrease in total expenses is mainly attributed to lower financing and exploration expenses, along with reduced costs related to the purchase of oil, partly offset by higher depreciation, exploration and selling costs.

Financials

Importantly, cash flow from operating activities came in at C$3,433 million in the second quarter, up 40% from the prior-year figure. The company incurred capital expenditure of C$1,364 million in the quarter under review.

As of Jun 30, Suncor had cash and cash equivalents of C$2,061 million, and total long-term debt of C$12,984 million. Its total debt-to-capitalization ratio was approximately 22%.

Suncor returned C$658 million to its shareholders through dividends and bought back C$552 million of outstanding shares in second-quarter 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -7.35% due to these changes.

VGM Scores

At this time, Suncor Energy has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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