It has been about a month since the last earnings report for SM Energy (SM). Shares have added about 4.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is SM 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 drivers.
SM Energy Beats Q2 Earnings Estimates, Declines Y/Y
SM Energy reported second-quarter 2019 adjusted earnings of 2 cents per share against the Zacks Consensus Estimate of a loss of 11 cents. The reported figure, however, decreased from earnings of 15 cents a year ago.
Total revenues, which declined to $407.2 million from $443.9 million in the prior-year quarter, marginally missed the Zacks Consensus Estimate of $408 million.
The better-than-expected second-quarter 2019 earnings were supported by higher production levels and increased operating efficiency. However, the positives were partially offset by lower commodity price realizations.
The company’s second-quarter production was 136.5 thousand barrels of oil equivalent per day (MBoe/d), up 19% from the year-ago level of 115.2 MBoe/d.
Oil production increased 24% year over year to 59.6 thousand barrels per day (MBbls/d). SM Energy produced 310.9 million cubic feet per day of natural gas in the quarter, up 12% year over year. Natural gas liquids contributed 25.1 MBbls/d to total production volume, up 20% from the second-quarter 2018 level.
Realized Prices Decline
Due to hedging, the average price per Boe was $33.07 (including the effects of derivative settlements) compared with $34.91 in the year-ago quarter. Including hedging activities, average realized price of natural gas fell 24% year over year to $2.51 per thousand cubic feet. Moreover, average realized prices of oil fell 2% to $54.07 per barrel and that of natural gas liquids declined 5% from the prior-year quarter to $20.42.
Cost & Expenses
On the cost front, unit lease operating expenses decreased 11% year over year to $4.16 per Boe, reflecting significant increase in efficiency. In addition, transportation expenses fell to $4 per Boe from $4.47 in the year-ago quarter. General and administrative expenses also decreased 10% to $2.49 per Boe from the prior-year level of $2.76. However, depletion, depreciation and amortization expenses were up 15% to $16.61 per Boe from the year-ago level of $14.48.
Total exploration expenses fell to $10.9 million from $14.1 million in the year-ago quarter. Hydrocarbon production expenses in the quarter were recorded at $123.1 million compared with the year-ago level of $117.4 million. Total operating expenses in the quarter declined to $303 million from the year-ago period’s $387.8 million, primarily due to a net derivative gain.
As of Jun 30, SM Energy had a cash balance of $12 thousand and long-term debt of $2,721.2 million. The company had a debt-to-capitalization ratio of 49.3%.
SM Energy expects full-year 2019 production to average 129-131 MBoe/d. Production for third-quarter 2019 is projected within 12-12.2 million barrels of oil equivalent or 130-133 MBoe/d, of which 43% is expected to be oil. For second-half 2019, the company expects capital program of around $70-80 million per month. Full-year lease operating expense is expected to be $5 per Boe. In 2019, the company expects to achieve production growth, while keeping capital expenditure low.
How Have Estimates Been Moving Since Then?
It turns out, estimates review flatlined during the past month.
At this time, SM Energy has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.
SM 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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