Shell (SHEL) Q4 Earnings Coming Up: Here's How It Will Fare
Shell plc SHEL is set to release fourth-quarter results on Feb 2. The current Zacks Consensus Estimate for the to-be-reported quarter is a profit of $2.10 per share.
Let’s delve into the factors that might have influenced the integrated energy behemoth’s results in the December quarter. But it’s worth taking a look at SHEL’s previous-quarter performance first.
Highlights of Q3 Earnings & Surprise History
In the last reported quarter, Europe’s largest oil company missed the consensus mark due to lower production and a pullback in refining margins from their second-quarter highs. SHEL had reported earnings per ADS (on a current cost of supplies basis, excluding items — the market’s preferred measure) — of $2.58, below the Zacks Consensus Estimate of $2.68.
Shell beat the Zacks Consensus Estimate for earnings thrice in the last four quarters and missed in the other, resulting in an earnings surprise of 7.7%, on average. This is depicted in the graph below:
Shell PLC Unsponsored ADR Price and EPS Surprise
Shell PLC Unsponsored ADR price-eps-surprise | Shell PLC Unsponsored ADR Quote
Factors to Consider
Earlier this month, Shell released a preliminary report for the October-December period, which said that its fourth-quarter profits would be impacted by some $2 billion due to the imposition of windfall taxes by the UK and European Union. To be reported as identified items, the taxation effect will not influence the period’s adjusted earnings. The London-based supermajor further revealed that its Chemicals and Products and Marketing division results would suffer this quarter but the Integrated Gas segment might benefit due to a boost from trading and optimization.
Now, let’s dig into some other segment-wise selected items from that release.
Upstream
According to the latest update, Shell’s upstream production fell 13.2% on a year-over-year basis in the fourth quarter of 2022 at the midpoint of the guidance. The supermajor estimates its output in the range of 1,825-1,925 MBOE/d compared to 2,161 MBOE/d a year ago and 1,789 MBOE/d in the third quarter of 2022. Tax charges are expected to hurt earnings in the range of $3.1-3.9 billion. Meanwhile, Shell sees the share of profit of joint ventures and associates to have an impact between a loss of $200 million and a gain of $400 million. The segment’s result is also likely to include well write-offs to the tune of $150-$550 million. Finally, operating expense for the segment is projected at around $3.1 billion.
Integrated Gas
Shell’s LNG liquefaction volumes are expected in the range of 6.6-7 million tons, translating into a deterioration of around 14% year over year and 6% sequentially. Shell’s integrated gas production is expected to decrease to the range of 900,000-940,000 barrels of oil equivalent per day (BOE/d) or 920,000 BOE/d at the midpoint. It was 927,000 BOE/d in the fourth quarter of 2021 and 924,000 BOE/d in the September quarter. Per the company, fourth-quarter trading and optimization results in its integrated gas unit will be “significantly higher compared to the third quarter 2022.” Segment operating cost is expected between $1.2 billion and $1.4 billion.
Marketing
The midpoint of management’s marketing sales volume guidance equates to 2.55 million barrels per day, lower than the 2.581 achieved in the third quarter of 2022. Overall, segment profits are expected to be below the quarter-ago levels, while operating expenses would be between $2 and $2.3 billion.
Chemicals & Products
The company fears a considerable drop in its ‘Trading & Optimisation’ results from the third-quarter levels. However, as projected by Shell, the refining margin should strengthen in the fourth quarter, with the metric improving 27% sequentially. Meanwhile, despite chemical margins returning to positive territory, numbers are expected to be lower partly due to the Pennsylvania Chemicals project’s commencement of tax-related depreciation. Shell also forecast refinery utilization of 88-92%, operating expense of 2.8-3.2 billion and chemicals manufacturing plant utilization of 75-79%.
Renewables and Energy Solutions
The adjusted bottom line of this segment is expected to hover between a loss of $500 million and a profit of $100 million.
What Does Our Model Say?
The proven Zacks model does not conclusively show that Shell is likely to beat estimates in the fourth quarter. 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. But that’s not the case here.
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 0.00%. This is because the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $2.10 per share each.
Zacks Rank: Shell currently carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult this earnings season.
Stocks to Consider
While an earnings beat looks uncertain for Shell, here are some firms from the energy space that you may want to consider on the basis of our model:
Patterson-UTI Energy PTEN has an Earnings ESP of +5.53% and a Zacks Rank #1. The firm is scheduled to release earnings on Feb 8.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Patterson-UTI Energy topped the Zacks Consensus Estimate by an average of 169.2% in the trailing four quarters, including a 47.4% beat in the last reported quarter. Valued at around $3.6 billion, PTEN has gained 68.3% in a year.
Imperial Oil Limited IMO has an Earnings ESP of +18.20% and a Zacks Rank #3. The firm is scheduled to release earnings on Jan 31.
Imperial Oil beat the Zacks Consensus Estimate for earnings in three of the last four quarters. It has a trailing four-quarter earnings surprise of 4.7%, on average. Valued at around $31.9 billion, IMO has gained 33.4% in a year.
Enterprise Products Partners L.P. EPD has an Earnings ESP of +1.95% and a Zacks Rank #3. The firm is scheduled to release earnings on Feb 1.
For 2022, Enterprise Products Partners has a projected earnings growth rate of 17.6%. Valued at around $57.7 billion, EPD has gained 12.2% in a year.
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Shell PLC Unsponsored ADR (SHEL) : Free Stock Analysis Report
