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Petrobras (PBR) Slides Despite Q3 Earnings Beat: Here's Why

The stock of Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras PBR, has lost 12.4% since its third-quarter results were announced on Nov 3. The negative response, despite an earnings beat, could be attributed to risks pertaining to political intervention and the company’s huge dividend outgo.

What Did Petrobras’ Earnings Unveil?

Petrobras announced third-quarter earnings per ADS of $1.35, beating the Zacks Consensus Estimate of $1.32 and significantly improving from the year-ago profit of 52 cents. The outperformance can be attributed to higher oil prices and strong downstream results, which more than offset the rising pre-salt lifting costs.

Recurring net income, which strips one-time items, came in at $8,803 million compared to $3,332 million a year earlier. Petrobras’ adjusted EBITDA rose to $17,410 million from $11,623 million a year ago.

The company reported revenues of $32,411 million, which jumped 39.4% from the year-earlier sales of $23,255 million but came in slightly below the Zacks Consensus Estimate of $32,541 million due to lower oil and gas production.

In further good news for investors, Petrobras plans to pay RMB 43.7 billion or roughly $8.5 billion in total dividends.  

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 2,644 thousand barrels of oil equivalent per day (MBOE/d) — 80% liquids — down from 2,830 MBOE/d in the same period of 2021.

Compared with the year-ago quarter, Brazilian oil and natural gas production — constituting approximately 99% of the total output — decreased 6.5% to 2,609 MBOE/d. The downside was blamed on decommissioning of a facility’s normal field declines, plus Petrobras’ lower working interests in the Atapu and Sepia fields, following production-sharing contracts.

In the July-to-September period, the average sales price of oil in Brazil surged 42.1% from the year-earlier period to $98.81 per barrel. The sharp increase in crude prices more than offset the dip in production, and thereby had a positive effect on upstream unit sales. Overall, the segment’s revenues jumped to $19,293 million in the quarter under review from $14,628 million in the year-ago period.

But as far as the bottom line is concerned, an uptick in pre-salt lifting costs (which rose 23.2% from the third quarter of 2021 to $5.36 per barrel) meant that the upstream unit recorded a net income of $7,591 million, down 4.8% from third-quarter 2021 earnings of $7,971 million.

Downstream (or Refining, Transportation and Marketing): Revenues from the segment totaled $29,348 million, up 43.2% from the year-ago figure of $20,500 million on higher fuel sales price. Petrobras' downstream unit came up with a profit of $1,340 million, which compared favorably with earnings of $1,046 million in the third quarter of 2021. The surge was on account of strong oil product margins in the domestic market.

Costs

During the period, Petrobras’ sales, general and administrative expenses were $1,547 million, 7.4% higher than the year-ago period. Selling expenses also rose from $1,103 million a year ago to $1,213 million. Moreover, the absence of the year-ago quarter’s massive reverse impairment of $3,098 million led to a $3,366 million increase in total operating expenses.

The jump in costs was more than neutralized by soaring revenues, which meant that PBR reported an operating income of $14,170 million in the third quarter of 2022 compared with $12,392 million a year ago.

Financial Position

During the three months ended Sep 30, 2022, Petrobras’ capital investments and expenditures (excluding signature bonus) totaled $2,131 million compared with $1,863 million in the prior-year quarter.

Importantly, the Zacks Rank #2 (Buy) company generated a positive free cash flow for the 30th consecutive quarter, with the metric rising to $10,117 million from $9,023 million recorded in last year’s corresponding period.

At the end of the third quarter, Petrobras had a net debt of $47,483 million, down from $48,132 million a year ago but up from $34,435 million as of Jun 30, 2022. The company ended the quarter with cash and cash equivalents of $4,374 million.

Meanwhile, Petrobras’ net debt to trailing 12 months EBITDA ratio improved to 0.75 from 1.17 in the previous year. However, it deteriorated from 0.60 at the end of the second quarter of 2022.

Other Energy Picks

Apart from Petrobras, investors interested in the energy sector might look at HF Sinclair DINO, Helmerich & Payne HP and Halliburton HAL, each carrying a Zacks Rank #1 (Strong Buy), currently.

You can see the complete list of today’s Zacks #1 Rank stocks here.

HF Sinclair: HF Sinclair is valued at some $13 billion. The Zacks Consensus Estimate for DINO’s 2022 earnings has been revised 11.9% upward over the past 60 days.

HF Sinclair, headquartered in Dallas, TX, delivered a 9.1% beat in Q3. DINO shares have surged 90.2% in a year.

Helmerich & Payne: HP beat the Zacks Consensus Estimate for earnings in three of the last four quarters. The company has a trailing four-quarter earnings surprise of roughly 124.2%, on average.

Helmerich & Payne is valued at around $5.5 billion. HP has seen its shares gain 104.6% in a year.

Halliburton: Halliburton is valued at some $33.2 billion. The Zacks Consensus Estimate for HAL’s 2022 earnings has been revised 4% upward over the past 60 days.

Halliburton, headquartered in Houston, TX, has a trailing four-quarter earnings surprise of roughly 5.5%, on average. HAL shares have gained 57.5% in a year.

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Petroleo Brasileiro S.A. Petrobras (PBR) : Free Stock Analysis Report

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