A month has gone by since the last earnings report for Imperial Oil (IMO). Shares have added about 3.5% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Imperial Oil due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Imperial Oil’s quarterly results reported an adjusted loss of 52 cents a share, narrower than the Zacks Consensus Estimate of a loss of 69 cents. This better-than-expected result was driven by higher year-over-year natural gas production. However, the Canadian integrated oil and gas player delivered earnings of 66 cents in the year-ago quarter. The year-over-year decline was due to lower price realizations.
In the second quarter, revenues of $2.68 billion fell shy of the Zacks Consensus Estimate of $3.09 billion. Moreover, the top line fell from the year-ago quarter’s sales of $6.92 billion.
Upstream: Revenues of C$1,180 million decreased from the prior-year level of C$3,707 million. The segment incurred a net loss of C$444 million against net income of C$985 million in the year-ago quarter. This downside was due to lower commodity price realizations in the upstream.
Net production volumes during the quarter under review averaged 341,000 barrels of oil equivalent per day (Boe/d), down from 354,000 Boe/d in the year-ago quarter due to the advancement and extension of planned turnaround activities resulting from the present business scenario. Total oil and NGL output amounted to 321,000 barrels per day (BPD) compared with 377,000 BPD in second-quarter 2019. Net oil and NGL output from Kearl and Cold Lake totaled 135,000 bpd and 123,000 bpd, respectively. Syncrude output averaged 50,000 BPD, down 37.5% from the year-earlier quarter. Net natural gas production came in at 146 million cubic feet per day (Mcf/d), higher than 139 Mcf/d in the comparable quarter last year.
Bitumen price realizations totaled C$12.82 a barrel, down from C$57.19 in the year-ago quarter. The company received an average realized price of C$32.20 per barrel of synthetic oil compared with the year-ago quarter’s C$79.96. For conventional crude oil, it received C$15.47 per barrel compared with the year-ago quarter’s C$58.20. Prices of NGL and gas declined year over year to C$13.88 a barrel and C$1.50 per thousand cubic feet, respectively.
Downstream: Revenues of C$2,738 million were down from $6,881 million in second-quarter 2019. Moreover, the segment incurred a net loss of C$32 million against net income of C$258 million in the year-ago quarter, attributable to weak margins of about $400 million and soft sales volumes of around $120 million.
Refinery throughput in the second quarter averaged 278,000 BPD, lower than the prior-year quarter’s level of 344,000 BPD. Capacity utilization of 66% compared unfavourably with the year-earlier level of 81%. This result was on account of muted demand and turnaround activities resulting from coronavirus.
Chemical: Revenues of C$199 million fell from C$314 million in second-quarter 2019. Net income was recorded at C$7 million compared with the year-ago quarter’s C$38 million.
Total expenses of C$4,403 million declined from the year-ago quarter’s C$8,532 million.
In the quarter under consideration, the company’s capital and exploration expenditures summed C$207 million, down from the year-ago quarter’s C$429 million. Of the total expenditure, 70% was allotted to the upstream segment.
Imperial Oil’s cash flow used in operating activities was C$816 million in the reported quarter. However, in the year-ago period, cash flow from operating activities came in at C$1,026 million.
Importantly, the company returned C$162 million to its shareholders through dividends in the reported quarter. It paid out 22 Canadian cents as dividend per share compared with 19 Canadian cents a year ago.
As of Jun 30, the company held C$233 million in cash and cash equivalents. Its total debt amounted to C$5,193 million, representing a total debt to total capital of 18.5%.
Responding to the coronavirus-induced sudden oil price slump, Imperial Oil is taking steps to rationalize its planned activities and capital spending for the current year.
Amid the growing crisis, the company announced sizeable cuts in 2020 capital and operating spending plans. Capital and exploration expenditures for the ongoing year are projected to be in the $1.1-$1.2 billion band, indicating a fall from the previous guided range of $1.6-$1.7 billion. Also, the company classified certain prospects to reduce 2020 operating expenses by $500 million from the year-ago levels.
Imperial Oil expedited the process of its Kearl project's planned turnaround by stopping work in mid-July with the expected completion in late August. This strategic action will further allow the company to manage its projected ramped-down production level in the near term. This, in turn, is likely to shrink Kearl’s total gross production to nearly 220,000 barrels per day in 2020 from the prior guidance of 240,000 barrels. Moreover, production from Cold Lake is estimated to decline to 135,000-140,000 barrels per day in the period.
By the end of the second quarter, refinery utilization rates and petroleum product sales dropped due to moderate demand for petroleum products in Canada. However, both metrics are anticipated to improve in the third quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted -625% due to these changes.
VGM Scores
Currently, Imperial Oil has a poor Growth Score of F, a grade with the same score on the momentum front. 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been trending upward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Imperial Oil has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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