Shell (RDS.A) Gears Up for Q3 Earnings: What's in Store?

Royal Dutch Shell PLC (RDS.A) is set to report third-quarter 2021 results on Thursday Oct 28, before the opening bell.

- Zacks

The Zacks Consensus Estimate for earnings is pegged at $1.37 for the to-be-reported quarter.

Against this backdrop, let’s delve into the factors that might have impacted the company’s September-quarter performance.

Key Q3 Predictions

Shell recently released a preliminary report for the July-September period, which suggests that the Anglo-Dutch biggie’s trading division is likely to have been sequentially higher for the Integrated Gas division and “similar” to the Oil Products business. Incidentally, the division was instrumental in helping the supermajor partly cushion the impact of the coronavirus-induced oil price slump.

Management further announced the launch of a $2-billion stock repurchase program and has raised its payout thrice since slashing it by two-thirds last year.

Shell expects a negative impact on its third-quarter earnings and cash flow results following disruptions in production in the U.S. Gulf of Mexico region after Hurricane Ida swept through the region. The company lost about $400 million of income when the storm forced it to shut down several Gulf facilities for days and weeks. 

Let’s dig into some other segment wise selected items from the preliminary report.

Upstream

According to the latest update, Shell’s upstream production fell 6.4% on a year-over-year basis in the third quarter of 2021 at the midpoint of the guidance. Taking into account the storm-related outage of 90 thousand barrels of oil equivalent per day (MBOE/d), the company is estimating its output in the range of 2,025-2,100 MBOE/d compared with 2,203 MBOE/d a year ago. Tax charges are expected to hurt earnings in the range of $1.2-1.7 billion.

Integrated Gas

Shell’s LNG liquefaction volumes are expected in the range of 7-7.5 million tons, indicating a decline of 7.1% from the year-ago quarter. This decrease is blamed on feedgas constraints and additional maintenance activities. However, Shell’s integrated gas production is expected to increase from 844,000 BOE/d in the third quarter of 2020 to the band of 890,000-950,000 barrels of oil-equivalent per day (BOE/d).

Oil Products

The company’s oil product sales are expected to increase to the range of 4.3-5.3 million barrels per day. Refinery utilization is estimated between 70% and 74%, suggesting growth from the year-ago period’s 65%. Marketing margins are expected to rise sequentially.

Chemicals

Chemical sales are envisioned to go down to the range of 3.4-3.7 million tons while margins are likely to decrease from the second quarter’s reading. Manufacturing plant availability is expected to be down between 74% and 78% (compared with 80% in the corresponding period of 2020).

What Does Our Model Say?

Our proven Zacks model predicts 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.

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 +4.13%.

Zacks Rank:  Shell currently sports a Zacks Rank of 1, which increases the predictive power of ESP.

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

Highlights of Q2 Earnings & Surprise History

Europe’s largest oil company Shell reported second-quarter earnings per ADS (on a current cost of supplies basis excluding items, signifying the market’s preferred measure) of $1.42. The bottom line came ahead of the Zacks Consensus Estimate of $1.31 and bettered the year-ago quarter’s profit of 16 cents per ADS.

This Hague-based energy player’s revenues logged $$61.8 billion, surging 90.1% from the second-quarter 2020 sales of $32.5 billion.

The outperformances were mainly backed by stronger commodity prices.

As far as its earnings surprises are concerned, the company’s bottom line trumped the Zacks Consensus Estimate in three of the trailing four quarters and missed the mark in the remaining period, the average surprise being 117.76%. 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

Other Stocks to Consider

Some other firms worth considering from the  energy  space with the right combination of elements to beat on earnings this season are as follows:

Oceaneering International, Inc. OII has an Earnings ESP of +100.00% and a Zacks Rank #3, currently. The firm is scheduled to release earnings on Oct 27.

Ovintiv Inc. OVV has an Earnings ESP of +1.96% and is presently Zacks #1 Ranked. The firm is scheduled to release earnings on Nov 2.

Diamondback Energy, Inc. FANG has an Earnings ESP of +2.48% and a Zacks Rank #2 at present. The firm is scheduled to release earnings on Nov 1.

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