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What Awaits Royal Dutch Shell (RDS.A) This Earnings Season?

Royal Dutch Shell PLC RDS.A is set to report fourth-quarter 2019 results on Thursday Jan 30, before the opening bell.

The current Zacks Consensus Estimate for the to-be-reported quarter is pegged at earnings of 80 cents, having been revised 9.09% downward in the past seven days.

Given this drab backdrop, let’s delve into the factors that might have impacted the company’s performance in the December quarter.

Highlights of Q3 Earnings & Surprise History

Europe’s largest oil company Shell reported earnings per ADS (on a current cost-of-supplies basis excluding items - the market’s preferred measure) of $1.18, beating the Zacks Consensus Estimate of 98 cents. This upside was driven by a strong performance by the company’s Downstream and Integrated Gas segments.

However, the bottom line fell 13.2% below the year-earlier quarter's earnings due to lower oil and gas prices.

Shell reported revenues of $89.5 billion, down 11.8% from third-quarter 2018 sales of $101.5 billion.

As far as earnings surprises are concerned, this Hague-based company’s bottom line trumped the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 5.02%. This is depicted in the graph below:

Royal Dutch Shell PLC Price and EPS Surprise

Royal Dutch Shell PLC price-eps-surprise | Royal Dutch Shell PLC Quote

Key Q4 Predictions

Upstream

Management projects fourth-quarter 2019 upstream production between 2,775 and 2,825 thousand barrels of oil equivalent per day (boe/d), indicating a slight improvement from its previous guided range of 2,650-2,800 thousand boe/d. Meanwhile, Shell had produced 2,809 thousand boe/d in the year-ago quarter. Considering the prior-year reported figure, the company is expected to have incurred additional $100-$200 million well write-offs for the fourth quarter due to weaker macro-economic outlook.

Downstream

Shell estimated its fourth-quarter oil product sales in the band of 6,500-7,000 thousand barrels per day, indicating a 1.36% increase from the year-earlier reported number assuming that the upper end of the estimate will be matched.

This Netherlands-based entity anticipates its refinery availability between 91% and 93%. In the third quarter of 2019, Shell had successfully divested its SASREF refining joint venture. Consequently, the oil and gas supermajor’s chemical sales are expected to have declined to 3.4-3.6 million tons in fourth-quarter 2019 from 4.1 million tons in fourth-quarter 2018.

Integrated Gas

The company expects fourth-quarter LNG liquefaction volumes to expand to 8.8-9.4 million tonnes from its previous year’s quarterly output of 8.78 million tonnes. Its segmental production is forecast in the 920-970 thousand boe/d band. However, in the year-earlier period, Shell had produced 979 thousand boe/d.

What Does Our Model Say?

The proven Zacks model does not conclusively predict an earnings beat for Shell this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. But that’s not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Shell has an Earnings ESP of 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 80 cents per share each.

Zacks Rank: Shell carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult for the stock this earnings season.

Stocks to Consider

Here are some companies worth considering from the energy space as per our model, these have the right combination of elements to beat on earnings this reporting cycle:

NuStar Energy L.P. NS has an Earnings ESP of +1.32% and a Zacks Rank #2. The company is slated to report fourth-quarter earnings on Feb 5.

Plains All American Pipeline, L.P. PAA has an Earnings ESP of +11.57% and a Zacks Rank of 3. The company is slated to announce fourth-quarter 2019 earnings on Feb 4.

Magellan Midstream Partners MMP has an Earnings ESP of +3.81% and is Zacks #3 Ranked. The partnership is slated to release fourth-quarter earnings on Jan 30. You can see the complete list of today’s Zacks #1 Rank stocks here.

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