Dj Marathon Petroleum Corp. Stock Underperforms Friday When Compared To Competitors

Petroleo Brasileiro S.A., or Petrobras PBR, announced third-quarter earnings per ADS of 93 cents, ahead of the Zacks Consensus Estimate of 82 cents and higher than the year-ago profit of 86 cents. The strong performance can be attributed to solid cost control measures.

Recurring net income, which strips out one-time items, came in at $5,937 million compared with $5,577 million a year earlier. Petrobras’ adjusted EBITDA fell to $11,480 million from $13,551 million a year ago.

Brazil's state-run energy giant reported revenues of $23,366 million, which fell 8.6% from the year-earlier sales of $25,552 million due to lower downstream sales and oil realizations. However, it beat the Zacks Consensus Estimate of $22,838 million.

Along with the third-quarter earnings announcement, PBR added that it plans to shell out RMB 17.12 billion in dividends and equity interests.

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 third quarter reached 2,689 thousand barrels of oil equivalent per day (MBOE/d) — 79% liquids — down from 2,877 MBOE/d in the same period of 2023.

Compared with the year-ago quarter, Brazilian oil and natural gas production — constituting approximately 99% of the total output — decreased 6.6% to 2,654 MBOE/d. The downside primarily reflected falling production rates in the pre-salt fields and other operational areas.

In the July to September period, the average sales price of oil (or the average Brent crude price) fell 7.6% year over year to $80.18 per barrel. The decrease in crude prices, together with lower production, had a negative effect on upstream unit sales. Overall, the segment’s revenues dropped to $15,383 million in the quarter under review from $17,922 million in the year-ago period.

As far as the bottom line is concerned, it was further dented by an uptick in pre-salt lifting costs (which rose 8.7% from the year-ago period to $6.10 per barrel). Consequently, the upstream unit recorded a net income of $5,416 million, down 13.7% from third-quarter 2023 earnings of $6,275 million.

Downstream (or Refining, Transportation and Marketing): Revenues from the segment totaled $21,739 million, 8.2% lower than the year-ago figure of $23,691 million, due to lower volumes. Petrobras' downstream unit recorded a profit of $255 million, which compared unfavorably with earnings of $814 million in the third quarter of 2023. Apart from a decline in refined products sales and output, the unit’s income was affected by higher refining cost.

Costs

During the period, Petrobras’ sales, general and administrative expenses were $1,602 million, 4.8% lower than the year-ago quarter. Selling expenses also fell from $1,288 million a year ago to $1,193 million. Moreover, a 28.4% increase in “other expenses” led to a marginal $15 million increase in total operating expenses.

While costs remained essentially flat, the decrease in revenues led to a drop in PBR’s operating income to $8,400 million in the third quarter of 2024 compared with $9,980 million a year ago.

Financial Position

During the three months ended Sept. 30, 2024, Petrobras’ capital investments and expenditures totaled $4,433 million compared with $3,392 million (excluding signature bonus) in the prior-year quarter.

Importantly, the Zacks Rank #3 (Hold) company generated a positive free cash flow for the 38th consecutive quarter, with the metric coming in at $6,857 million. However, it fell from $8,364 million recorded in last year’s corresponding period.

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

At the end of the third quarter of 2024, Petrobras had a net debt of $44,251 million, up from $43,725 million a year ago but down from $46,160 million as of June 30, 2024. The company ended the quarter with cash and cash equivalents of $8,694 million.

Petrobras’ net debt to trailing 12-month EBITDA ratio deteriorated to 0.95 from 0.83 in the previous year. It was 0.95 at the end of the previous quarter too.

Some Key Energy Earnings

While we have discussed PBR’s third-quarter results in detail, let’s see how some other energy companies have fared this earnings season.

Oil supermajor Chevron CVX reported adjusted third-quarter earnings per share of $2.51, beating the Zacks Consensus Estimate of $2.47. The outperformance stemmed from higher-than-expected U.S. production in the company’s key upstream segment, as volume from the Permian Basin reached an all-time high. The unit’s domestic output of 1,605 thousand oil-equivalent barrels per day (MBOE/d) came in slightly above the consensus mark of 1,602 MBOE/d.

CVX recorded $9.7 billion in cash flow from operations, the same as the year-ago period, as a drop in earnings and a one-time outgo was somewhat offset by higher dividends from equity affiliates and lower working capital. Chevron’s free cash flow for the quarter was $5.6 billion.

ConocoPhillips COP, one of the world’s largest independent oil and gas producers, reported third-quarter 2024 adjusted earnings per share of $1.78, which beat the Zacks Consensus Estimate of $1.68. The outperformance can be attributed to higher oil equivalent production volumes and decreased total costs and expenses.

As of Sept. 30, 2024, ConocoPhillips had $5.2 billion in cash and cash equivalents. The company had a total long-term debt of $16.99 billion and a short-term debt of $1.3 billion as of the same date. Capital expenditure and investments totaled $2.92 billion. Net cash provided by operating activities was $5.8 billion.

Finally, we have refiner Marathon Petroleum’s MPC third-quarter adjusted earnings per share of $1.87, which comfortably beat the Zacks Consensus Estimate of 97 cents. The outperformance primarily reflects the stronger-than-expected performance of its Refining & Marketing segment. Operating income of the segment totaled $298 billion, surpassing the consensus mark, calling for a loss of $64 million on the back of strong product sales and throughput.

Marathon Petroleum’s total refined product sales volumes were 3,685 thousand barrels per day (mbpd), up from 3,596 mbpd in the year-ago quarter. Throughput rose marginally from 2,959 mbpd in the year-ago quarter to 2,991 mbpd and outperformed the Zacks Consensus Estimate of 2,852 mbpd. MPC’s operating costs per barrel increased from $5.14 in the year-ago quarter to $5.30.

Zacks Investment Research

Data from the U.S. Energy Information Administration (“EIA”) indicates that U.S. gasoline inventories have unexpectedly dropped to their lowest levels in two years, driven by robust demand and tighter fuel supplies. EIA reports reflect a 6% increase in gasoline demand during the week ending Nov. 8, justifying the strong fuel demand and supporting higher refining margins. With crack spreads anticipated to remain favorable, Phillips 66 PSX, Marathon Petroleum Corporation MPC and Exxon Mobil Corporation XOM are positioned to benefit significantly.

Crack Spreads Expected to Rise: Key Drivers

The November 2024 short-term Energy outlook from the EIA forecasts a moderate increase in crack spreads, signaling higher refining margins for products like gasoline and diesel. This projection is driven by several critical factors:

Shrinking Refinery Capacity

Planned closures of major U.S. refineries, including the LyondellBasell Houston facility (263,800 barrels per day) in early 2025 and the Phillips 66 refinery near Los Angeles later that year, will significantly reduce domestic refining capacity. This diminished capacity is expected to constrain fuel production, pushing refining margins upward.

Growing Fuel Demand

Rising U.S. demand for gasoline and diesel, fueled by increasing industrial activity and transportation requirements, is anticipated to outpace the reduced refinery output. This imbalance between supply and demand will further elevate crack spreads.

Global Refinery Additions Not Keeping Pace

Although new refinery capacity is being added globally, these expansions are unlikely to fully offset the impact of U.S. refinery closures. As a result, domestic refining margins are set to face continued upward pressure.

The combination of these domestic and global factors creates a market environment conducive to higher refining margins in the near term.

3 Energy Stocks to Keep an Eye on: PSX, MPC, XOM

Widening crack spread, which reflects wider refining margins, will benefit companies with refining operations like Phillips 66, Marathon Petroleum and Exxon Mobil Corporation. This is because it will be translated to greater profitability while processing raw crude oil into refined products like gasoline, diesel, and jet fuel. All the stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Phillips 66

Phillips 66 is a global leader in refining, with a daily crude processing capacity of 1.8 million barrels. The company operates nine refineries across the United States and two in Europe. Its strategic priorities center on ensuring financial stability and maximizing shareholder returns.

Marathon Petroleum

Marathon Petroleum has 13 refineries with a refining capacity of 3 million barrels per day. The company’s optimized processing capacity can produce higher-margin products that consumers utilize every day. In the Gulf Coast, the company has among the largest refining capacities.

ExxonMobil

ExxonMobil’s downstream operations comprise one of the largest refining businesses in the world, having 21 refineries with distillation capacity of nearly 5 million barrels per day. The company is responsible for selling more than 5.4 million barrels of petroleum products per day.

Zacks Investment Research