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What's in Store for Shell (RDS.A) This Earnings Season?

Zacks Equity Research

Royal Dutch Shell plc RDS.A is set to announce first-quarter 2019 results on May 2, before the opening bell.

In the preceding three-month period, the Hague-based super major reported better-than-expected results on the back of stronger y/y contribution across all its three segments, namely Upstream, Downstream and Integrated Gas. Coming to earnings surprise history, the Anglo-Dutch energy company displays a mixed record, having surpassed earnings estimates in two of the last four quarters, with average negative surprise of 4.22%.

Royal Dutch Shell PLC Price and EPS Surprise

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

Let’s see which way are the top and bottom-line estimates headed this time. The Zacks Consensus Estimate for revenues is pegged at $83 billion, indicating a fall from $91 billion in the prior-year quarter. The Zacks Consensus Estimate for first-quarter earnings of $1.05 per share also implies a decline of 18% from the year-ago reported figure. Earnings estimates for the to-be-reported quarter have been upwardly revised by four cents in the past 30 days.

Let’s delve deeper into the factors that are likely to influence Shell’s earnings in the quarter to be reported.

Factors Setting the Tone

Following the oil crash toward the end of 2018, WTI crude popped up to $60.55 a barrel in the March quarter of 2019, recording the fastest rate of oil price increase since a decade. Crude prices rebounded 30% in the first quarter, underpinned mainly by OPEC+ supply cuts and U.S. sanctions against Venezuela and Iran, which bode well for the upstream segment of Shell. However, the company expects first-quarter 2019 upstream volumes to be down 10,000-50,000 barrels of oil equivalent per day (BOE/D) year over year, mainly due to divestments and field declines. Hence, while higher price realizations will aid Shell, lower output may limit the segment’s profits.

Shell’s downstream performance is likely to be affected by weak margins and lower oil products sales volumes. Notably, the volumes are anticipated to decline within 40,000-70,000 BOE/D from the year-ago period, due to divestment of the downstream business in Argentina to Raizen. Further, refinery utilization rates are likely to reduce from the year-ago period owing to turnaround activities.

Shell also expects production from the integrated gas segment to reduce by around 140,000-170,000 BOE/D, mainly attributable to asset sales and the transfer of certain operations into the upstream unit. In addition to the reduced output, the company is likely to bear the brunt of lower y/y natural gas prices. Notably, average natural gas price for first-quarter 2019 is projected at 2.91 per Million British thermal units versus 3.07 in the corresponding quarter of 2018.

What Our Model Says

Our proven model does not conclusively show that Shell will beat estimates in the upcoming quarterly report. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to be able to beat estimates. That is not the case here as you will see below. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP:  Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, stands at 0.00%. This is because both the Zacks Consensus Estimate and the Most Accurate Estimate are pegged at $1.05.

Zacks Rank: Shell currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

While the favorable Zacks Rank increases the predictive power of ESP, a 0.00% ESP makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Though an earnings beat looks uncertain for Shell, here are a few energy firms that you may want to consider on the basis of our model. These have the right combination of elements to post an earnings beat in the upcoming quarterly release:

Abraxas Petroleum Corporation AXAS has an Earnings ESP of +133.33% and a Zacks Rank #3. The company is anticipated to release quarterly earnings on May 6.

C&J Energy Services, Inc. CJ has an Earnings ESP of +14.87% and a Zacks Rank #3. The company is expected to release quarterly earnings on May 7.

Comstock Resources Inc. CRK has an Earnings ESP of +11.95% and a Zacks Rank #2. The company is set to release first-quarter earnings on May 9.

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