The stock of Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras PBR, has gained nearly 24% since its second-quarter results were announced on Jul 28. The positive response could be attributed to the company’s comfortable earnings beat and its declaration of record dividend payments.
What Did Petrobras’ Earnings Unveil?
Petrobras announced second-quarter earnings per ADS of $1.39, beating the Zacks Consensus Estimate of $1.14 and improving from the year-ago profit of $1.18. 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 $9,101 million compared to $7,717 million a year earlier. Petrobras’ adjusted EBITDA rose to $19,943 million from $11,750 million a year ago.
The company reported revenues of $34,703 million, which jumped 65.4% from the year-earlier sales of $20,982 million but came in below the Zacks Consensus Estimate of $35,386 million due to lower oil and gas production.
In further good news for investors, Petrobras plans to pay RMB 6.732 per share as dividends, which amounts to RMB 87.8 billion or roughly $17 billion in total payouts – the highest ever.
Petroleo Brasileiro S.A. Petrobras Price, Consensus and EPS Surprise
Petroleo Brasileiro S.A. Petrobras price-consensus-eps-surprise-chart | Petroleo Brasileiro S.A. Petrobras Quote
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 second quarter reached 2,653 thousand barrels of oil equivalent per day (MBOE/d) — 80% liquids — down from 2,796 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 5% to 2,616 MBOE/d. The downside was blamed on maintenance stoppages, plus Petrobras’ lower working interests in the Atapu and Sepia fields, following production-sharing contracts.
In the April-to-June period, the average sales price of oil in Brazil surged 63% from the year-earlier period to $106.90 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 and earnings.
Overall, the segment’s revenues jumped to $21,940 million in the quarter under review from $13,509 million in the year-ago period. As far as the bottom line is concerned, despite an uptick in pre-salt lifting costs (which rose 23% from the second quarter of 2021 to $5.19 per barrel), the upstream unit recorded a net income of $10,803 million, more than doubling from second-quarter 2021 earnings of $4,948 million.
Downstream (or Refining, Transportation and Marketing): Revenues from the segment totaled $31,956 million, up 68.1% from the year-ago figure of $19,007 million on higher fuel sales price. Petrobras' downstream unit came up with a profit of $2,761 million, which compared favorably with earnings of $1,673 million in the second quarter of 2021. The surge was on account of strong oil product margins.
During the period, Petrobras’ sales, general and administrative expenses were $1,570 million, 16.6% higher than the year-ago period. Selling expenses also rose from $1,086 million a year ago to $1,247 million. However, these increases were more than offset by sharp declines in exploration costs and a massive increase in other income/expenses. Consequently, total operating expenses fell $2,023 million from the corresponding quarter last year.
The decline in costs was complemented by soaring revenues, which meant that PBR reported an operating income of $19,557 million in the second quarter of 2022 compared with $8,895 million a year ago.
During the three months ended Jun 30, 2022, Petrobras’ capital investments and expenditures (excluding signature bonus) totaled $2,181 million compared with $2,364 million in the prior-year quarter.
Importantly, the Zacks Rank #1 (Strong Buy) company generated positive free cash flow for the 29th consecutive quarter, with the metric rising to $12,799 million from $9,338 million recorded in last year’s corresponding period.
At the end of the second quarter, Petrobras had a net debt of $34,435 million, down from $53,262 million a year ago and $40,072 million as of Mar 31, 2022. The company ended the quarter with cash and cash equivalents of $16,294 million.
Meanwhile, Petrobras’ net debt to trailing 12 months EBITDA ratio improved to 0.60 from 1.49 in the previous year. It was also better than 0.81 at the end of the first quarter of 2022.
Other Energy Picks
Apart from Petrobras, investors interested in the energy sector might look at Equinor ASA EQNR, ExxonMobil XOM and Earthstone Energy ESTE, each carrying a Zacks Rank #1 (Strong Buy), currently.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Equinor: Equinor is valued at some $120.5 billion. The Zacks Consensus Estimate for EQNR’s 2022 earnings has been revised 10.5% upward over the past 60 days.
Equinor, headquartered in Stavanger, Norway, delivered an 8.3% beat in Q2. EQNR shares have surged 78.6% in a year.
Earthstone Energy: ESTE beat the Zacks Consensus Estimate for earnings in each of the last four quarters. The company has a trailing four-quarter earnings surprise of roughly 27%, on average.
Earthstone Energy is valued at around $1.7 billion. ESTE has seen its shares gain 93.7% in a year.
ExxonMobil: ExxonMobil is valued at some $384.8 billion. The Zacks Consensus Estimate for XOM’s 2022 earnings has been revised 21.2% upward over the past 60 days.
ExxonMobil, headquartered in Irving, TX, has a trailing four-quarter earnings surprise of roughly 1.6%, on average. XOM shares have gained 68.1% in a year.
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