Shell Profit Misses Estimates
Shell’s adjusted net income for the fourth quarter was $2.93 billion, down 48% from a year earlier.
(Bloomberg) --
Royal Dutch Shell Plc fell to the lowest in more than two years after it scaled back share buybacks, underscoring the pressure on Big Oil due to slumping natural gas prices and weaker refining and chemicals.
The energy giant’s fourth-quarter results, which also missed profit expectations, set a gloomy tone for what is expected to be a broadly weaker set of earnings for the industry. The final months of last year saw gas trade at historically low prices, while slowing economic growth shrank margins from making fuel and chemicals.
The Anglo-Dutch company will probably miss its target of buying back $25 billion of shares by the end of 2020 if the macro-economic environment doesn’t improve, Chief Executive Officer Ben van Beurden said in a Bloomberg TV interview. Shell, which is currently about $10 billion short of that goal, said the next tranche of repurchases won’t exceed $1 billion, compared with $2.75 billion in each of the previous three quarters.
“We just have to take a prudent look going forward,” van Beurden said. “If we don’t see a recovery in the macro, yes, we will see $25 billion slipping into a later period.”
Shell’s B shares had fallen as much as 4.1% to 2,037 pence as of 9:19 a.m. in London, the lowest since April 2017.
“Shell’s disappointing 4Q results, with adjusted earnings below consensus, largely confirm our concerns of the waning attainability of 2020 buyback and deleveraging targets while challenging macroeconomic and commodity price conditions show no sign of easing.” -- Bloomberg Intelligence Global Energy Analyst Will Hares
Adjusted net income for the fourth quarter was $2.93 billion, down 48% from a year earlier and falling short of the average analyst estimate of $3.15 billion.
Shell took a hit on the chemicals side of the business. Activity at the company’s plants slowed to 85% of capacity from 93% due to higher levels of maintenance. Adjusted profit in the downstream division, which includes refining and chemicals, fell 36% to $1.37 billion.
There’s been a wave of new chemical projects globally that are driving down margins for established producers. Exxon Mobil Corp., which has the biggest chemical division among oil companies, has already warned investors the unit will probably report a loss in the fourth quarter.
“Chemicals are really at the floor,” van Beurden said. “There are macroeconomic headwinds” and the spread of the coronavirus in China is very concerning.
Even as global crude benchmark Brent averaged above $62 in the fourth quarter, price weakness in Shell’s other main products pressured the company’s finances. Gearing, the ratio of net debt to equity, was 29% at the end of the period, well above Shell’s own 25% target despite the company cutting investment in projects to the lower end of its expected range of $24 billion to $29 billion.
In this environment, the slower pace of repurchases looks prudent, said RBC analyst Biraj Borkhataria.
“The $1 billion run rate looks well covered on our estimates,” Borkhataria said in a note to clients. “Given gearing is 29%, we think Shell is right to be more cautious.”
Shell’s American rivals Exxon and Chevron Corp. are due to report results on Friday. European peers BP Plc and Total SA will release their figures next week.
--With assistance from Christopher Sell and Anna Edwards.
To contact the reporters on this story: Laura Hurst in London at lhurst3@bloomberg.net;Javier Blas in London at jblas3@bloomberg.net
To contact the editors responsible for this story: James Herron at jherron9@bloomberg.net, Christopher Sell
©2020 Bloomberg L.P.