Petrobras (PBR) Stock Barely Moves Since Q3 Earnings Miss
The stock of Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras PBR, has hardly moved since its third-quarter results were announced on Oct 28. The muted response could be attributed to the company’s mixed performance of lower-than-expected earnings but a top-line beat.
What Did Petrobras’ Earnings Unveil?
Petrobras announced third-quarter earnings per ADS of 52 cents, missing the Zacks Consensus Estimate of 72 cents. The underperformance can be attributed to unfavorable currency effects and higher pre-salt lifting costs.
However, the bottom line improved markedly from the year-ago profit of 9 cents on the back of higher oil prices and strong downstream results. Recurring net income, which strips one-time items, came in at $3,332 million compared to just $633 million a year earlier. Petrobras’ adjusted EBITDA rose to $11,623 million from $6,214 million a year ago.
Petrobras, which also hiked its dividend, reported revenues of $23,255 million that overshot the Zacks Consensus Estimate of $22,356 and surged from the year-earlier sales of $13,148 million.
Petroleo Brasileiro S.A. Petrobras Price, Consensus and EPS Surprise
Coming back to earnings, let's take a deeper look at the recent performances of PBR’s two main segments: Upstream (Exploration & Production) and Downstream (or Refining, Transportation and Marketing).
Upstream: The Rio de Janeiro-headquartered company’s average oil and gas production during the third quarter reached 2,830 thousand barrels of oil equivalent per day (MBOE/d) — some 80% liquids — down from 2,952 MBOE/d in the same period of 2020. Compared with the year-ago quarter, Brazilian oil and natural gas production — constituting 98.6% of the overall output — decreased 3.9% to 2,790 MBOE/d.
In the July to September period, the average sales price of oil in Brazil soared 64.4% from the year-earlier period to $69.54 per barrel. The sharp increase in crude prices had a positive effect on the upstream segment’s earnings.
Overall, the segment’s revenues improved to $14,628 million in the quarter under review from $9,358 million in the year-ago period. As far as the bottom line is concerned, despite an uptick in pre-salt lifting costs (which rose 12.7% from the third quarter of 2020 to $4.35 per barrel), the upstream unit recorded a net income of $7,971 million, jumping from the third-quarter 2020 profit of $2,707 million.
Downstream (or Refining, Transportation and Marketing): Revenues from the segment totaled $20,500 million, up 71.5% from the year-ago figure of $11,955 million. Petrobras' downstream income of $1,046 million skyrocketed from the year-ago profit of $403 million, primarily due to strong domestic fuel margins.
Costs
During the period, Petrobras’ sales, general and administrative expenses totaled $1,440 million, down 3% from the year-ago period. Selling expenses also declined from $1,175 million to $1,103 million. Moreover, a reverse impairment of $3,098 million meant that total operating expenses fell by $3,751 million from the corresponding quarter last year. This meant that the company reported operating income of $12,392 million in the third quarter of 2021 compared with $3,529 million a year ago.
Financial Position
During the three months ended Sep 30, 2021, Petrobras’ capital investments and expenditures totaled $1,863 million compared with $1,638 million in the prior-year quarter.
Importantly, the company generated positive free cash flow for the 26th consecutive quarter, with the metric coming at $9,019 million, rising from $7,468 million recorded in last year’s corresponding period.
At the end of the third quarter, Petrobras had a net debt of $48,132 million, decreasing from $66,218 million a year ago and $53,262 million as of Jun 30, 2021. The company ended the quarter with cash and cash equivalents of $10,925 million.
Meanwhile, Petrobras’ net-debt-to-trailing-12-months EBITDA ratio improved to 1.17 from 2.33 in the previous year.
Zacks Rank & Stock Pick
Petrobras currently carries a Zacks Rank #2 (Buy).
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