Suncor Energy (SU) Rallies 7.7% Despite Q1 Earnings Miss

Shares of Suncor Energy (NYSE:SU) SU have rallied 7.7% since first-quarter 2021 earnings announcement on May 3.

Despite the company’s lower-than-expected earnings, investors were impressed by the company's ability to reduce total debt by $1.1 billion in the first quarter of 2021. Based on its capability to strengthen its cost structure, Suncor Energy reaffirms its plans to maintain a prudent capital approach and estimates to repay further debt in 2021, thereby indicating its capacity to generate cash flow.

Behind the Earnings Headlines

Suncor Energy reported first-quarter 2021 operating earnings per share of 39 cents, missing the Zacks Consensus Estimate of 44 cents. This lower-than-expected result is due to its ramped-down production from the exploration and production segment.

Meanwhile, the year-ago bottom line was a loss of 15 cents per share. This year-over-year outperformance is led by improved refined product sales and decreased operating, selling and general costs as a result of the company’s continuous cost-minimizing efforts.

Quarterly operating revenues of $6.82 billion came ahead of the Zacks Consensus Estimate of $6.3 billion. Moreover, the top line rose 17.9% from $5.78 billion in the year-ago quarter.

Upstream

Total upstream production in the reported quarter was 785,900 barrels of oil equivalent per day (Boe/d), up 6.2% from the prior-year level of 739,800 Boe/d. This rise in output was owing to better Syncrude and Oil Sands production plus planned maintenance activities at Oil Sands operations. Evidently, this upstream unit recorded operating earnings of C$163 million against the loss of C$427 million in the prior-year quarter.

Notably, output from Syncrude operations scaled up to 193,500 Bbl/d from 174,400 Bbl/d a year earlier.

Fort Hills production came in at 51,200 barrels per day (BPD) in the quarter, lower than 80,700 BPD registered in the year-ago period.

Oil Sands operations volume was 463,800 Bbl/d compared with 387,900 Bbl/d in the year-earlier quarter. Operating costs per barrel decreased to C$23.30 in the quarter under review from C$29.45 in the corresponding period of 2020. Upgrader utilization increased to 97% from 93% in the comparable quarter of last year.

However, Suncor Energy’s Exploration and Production segment (consisting of International, Offshore and Natural Gas segments) produced 95,300 Boe/d compared with 109,700 Boe/d in the prior-year quarter. Results were impacted by the absence of Terra Nova production and natural production declines.

Downstream

Operating earnings from the downstream unit rose to C$714 million from the year-ago figure of C$101 million, attributable to improved margins and strong refined product sales. Suncor Energy recorded impressive refined product sales in the quarter under consideration, which increased to 548,100 Bbl/d from the prior-year level of 531,500 Bbl/d.

Crude throughput came in at 428,400 Bbl/d in the first quarter compared with 439,500 Bbl/d in the year-ago period. Also, refinery utilization was 92%.

Expenses

Total expenses in the reported quarter plummeted to C$7.52 billion from C$12.1 billion in the year-earlier period. This uptrend is mainly led by lower costs related to the purchases of crude oil and products as well as a fall in operating, selling and general costs.

Financials

Importantly, cash flow from operating activities summed C$2.345 billion in the first quarter, up from the prior-year figure of C$1.384 billion. The company incurred capital expenditure worth C$772 million in the quarter under discussion.

As of Mar 31, 2021, Suncor Energy had cash and cash equivalents worth C$1.76 billion and a total long-term debt of C$15.1 billion. Its total debt to total capital was 29.3%.

During the quarter under review, the company distributed $319 million as dividends.

Suncor Energy Inc. Price, Consensus and EPS Surprise

Suncor Energy Inc. price-consensus-eps-surprise-chart | Suncor Energy Inc. Quote

Guidance

For the full year, this Alberta-based integrated player will continue to focus on strengthening its financial position. The company assigned about two-thirds of its free cash flow on debt repayment and one-third on share repurchases. It plans to maintain a disciplined capital approach and estimates to repay around C$1-C$1.5 billion debt in 2021, thereby indicating its capability to generate cash flow. All these measures position Suncor Energy well to benefit its upstream and downstream business.

Zacks Rank & Other Key Picks

Suncor Energy currently sports a Zacks Rank #1 (Strong Buy). Other top-ranked players in the energy space include Whiting Petroleum (NYSE:WLL) Corporation WLL, Matador Resources (NYSE:MTDR) Company MTDR and Continental Resources (NYSE:CLR), Inc. CLR, each presently flaunting a Zacks Rank of 1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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