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Petrobras (PBR) Q1 Earnings Buoyed by Higher Oil, Cost Cuts

Zacks

Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras PBR announced first quarter net income of $1,417 million or 11 cents per share, compared with a loss of $318 million or 2 cents in the year-earlier quarter. Earnings per ADR came in at 22 cents (1 ADR equivalent to 2 shares in the Brazilian market), well ahead of the Zacks Consensus Estimate of 7 cents.

Higher oil prices and cost cuts were primarily responsible for the turnaround, which helped Petrobras post its best quarterly earnings in two years.

Importantly, Petrobras generated free cash flows of $4,250 million for the three-month period ended Mar 31 – positive for the eighth quarter in a row – reflecting operational improvement and lower investments. Moreover, adjusted EBITDA rose 48% to $8,030 million.

The troubled national oil company’s net operating revenues of $21,737 million was ahead of the year-earlier sales of $17,989 million but was shy of the Zacks Consensus Estimate of $24,189 million amid lower oil sales volume in Brazil.


Upstream

The Rio de Janeiro-headquartered company’s total oil and gas production during the first quarter reached 2,805 thousand oil-equivalent barrels per day (MBOE/d) – 80% liquids – up from 2,616 MBOE/d in the same period of 2016.

Compared with the first quarter of 2016, Brazilian oil and natural gas production – constituting 96% of the overall output – increased 10% to 2,683 MBOE/d.

In the Jan to mar period, the average sales price of oil in Brazil jumped 76% from the year-earlier period to $50.70 per barrel. This enabled Petrobras' upstream unit to turn profitable in the first quarter and earn $2,067 million, reversing a $154 million loss in the year-earlier period.

Downstream

During the first quarter, Petrobras' downstream unit earned $1,291 million, down 37% from the year-earlier quarter figure of $2,041 million. The underperformance reflects lower diesel and gasoline sales margins due to a rise in their input costs with increase in oil prices, plus lower domestic oil products sales volume.

Costs

During the quarter, Petrobras’ sales, general and administrative expenses stood at as against in the year-ago period. Moreover, selling expenses fell by 21% to $760 million.

Capital Spending & Balance Sheet

During the three months ended Mar 31, 2017, Petrobras’ capital investments and expenditures totaled $3,670 million, lower than the $3,987 million incurred in the year-ago period. Also, over the past year, the company cut its workforce by 17% through a voluntary separation program.

This allowed the world's most indebted oil company to trim its massive debt load. At the end of the quarter, the company had net debt of $94,993 million, decreasing from the $96,381 million as of Dec 31, 2016. Net debt-to-capitalization ratio during the same period was approximately 54%, down from 55% three months ago. Additionally, Petrobras finished the first quarter with cash and cash equivalents of $19,213 million.

Price Performance

Regarding price performance, Petrobras' ADRs increased 43% over the last one year, which comfortably outpaced the 30% gain for Zacks categorized Oil & Gas – Integrated – Emerging Markets industry.

Zacks Rank & Stock Picks

Petrobras currently carries a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at better-ranked energy players like Imperial Oil Ltd. IMO, Canadian Natural Resources Ltd. CNQ and Par Pacific Holdings Inc. PARR. All are Zacks Rank #1 (Strong Buy) stocks. You can see the complete list of today’s Zacks #1 Rank stocks here.

Imperial Oil is engaged in the production and sale of crude oil and natural gas in Canada. This Calgary, Alberta-headquartered company’s expected EPS growth rate for 3 to 5 years currently stands at 16.10% –– comparing favorably with the industry growth rate of 9.80%.

Calgary, Alberta-based Canadian Natural Resources is engaged in the acquisition, development and exploitation of crude oil and natural gas properties. The 2017 Zacks Consensus Estimate for this company is $1.30, representing some 720% earnings per share growth over 2016. Next year’s average forecast is $2.51, pointing to another 93% growth.

Par Pacific Holdings, Inc., based in Houston, TX, is a diversified energy player that operates in 4 segments: Refining and Distribution, Retail, Commodity Marketing and Logistics, and Natural Gas and Oil. The company has outperformed earnings estimates in the last 2 reported quarters.

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