Why Is Suncor Energy (SU) Down 12.5% Since Last Earnings Report?

A month has gone by since the last earnings report for Suncor Energy (SU). Shares have lost about 12.5% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Suncor Energy due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Suncor Q4 Earnings Miss, Hikes Dividend

Suncor Energy announced fourth-quarter 2019 results wherein its earnings missed estimates. The company’s operating earnings per share of 39 cents lagged the Zacks Consensus Estimate of 50 cents, attributable to lower output contribution from Fort Hills and Syncrude operations.

However, the bottom line improved 40.74% from the prior-year figure of 27 cents per share. This upside in the year-over-year results is driven by a strong production in the East Coast Canada and Oda.

Moreover, quarterly operating revenues of $7,226.05 million fell short of the Zacks Consensus Estimate of $8,864 million. However, the top line increased 6.74% from $6,769 million in the year-ago quarter.

Upstream

Total upstream production in the reported quarter was 778,200 barrels of oil equivalent per day (Boe/d), down 6.35% from the prior-year level of 831,000 Boe/d. This fall in output was due to a drop in the Oil Sands production, caused by planned maintenance and mandatory production cuts implemented by the Alberta government. However, this upstream unit recorded operating earnings of C$508 million against a loss of C$269 million in the prior-year quarter, courtesy of higher output contribution from East Coast Canada and Oda.

Notably, Fort Hills production came in at 87,900 barrels per day (Bbl/d) in the quarter, lower than 98,500 Bbl/d registered in the year-ago period due to production curtailments and planned maintenance.

Also, the same induced lower output from Syncrude operations that scaled down to 156,300 Bbl/d from 209,600 Bbl/d a year earlier.

Oil Sands operations volume was 418,100 Bbl/d compared with 432,700 Bbl/d in the year-earlier quarter. Operating costs per barrel increased to C$28.55 in the quarter under review from C$24.5 in the corresponding period of 2018. However, upgrader utilization increased to 86% from 79% in the comparable quarter last year.

Suncor Energy’s Exploration and Production segment (consisting of International, Offshore and Natural Gas segments) produced 115,900 Boe/d compared with 90,200 Boe/d in the prior-year quarter. Results were boosted by higher output levels from East Coast Canada and Oda, which began production at the start of 2019. The same was but partially offset by natural declines in the United Kingdom.

Downstream

Operating earnings from the downstream unit decreased to C$558 million from the year-ago figure of C$762 million due to soft refining margins. Suncor Energy recorded better refined product sales in the quarter under consideration, which rose to 534,600 Bbl/d from the prior-year level of 530,600 Bbl/d on strong refinery utilization levels. Refining margin was C$34.8 a barrel compared with C$41.5 a year ago.

Crude throughput came in at 447,500 Bbl/d in the fourth quarter compared with 467,900 Bbl/d in the year-ago period. Also, refinery utilization was 97%.

Expenses

Total expenses in the reported quarter escalated to C$12,667 million from C$9,057 million in the year-earlier period. This elevation in total expenses is mainly induced by higher refinery maintenance, transportation and business development costs.

Financials

Importantly, cash flow from operating activities summed C$2,304 million in the fourth quarter, down 24.2% from the prior-year figure of C$3,040 million. The company incurred capital expenditure worth C$1,738 million in the quarter under discussion.

As of Dec 31, 2019, Suncor Energy had cash and cash equivalents of C$1,960 million and total long-term debt of C$12,884 million. Its total debt-to-capitalization ratio was 23.45%.

Suncor Energy returned C$644 million to its shareholders through dividends and repurchased C$11.1 million of outstanding shares in the fourth quarter.

Dividend Hike

In a shareholder-friendly measure, Suncor Energyrecentlyannounced an 11% dividend rise. This strategic move is indicative of the company’s commitment to create value for its shareholders and its high confidence level in business growth.

The firm raised its quarterly dividend to 46.5 Canadian cents per share on its stock. The amount will be paid out on Mar 25, 2020 to its shareholders of record as of Mar 4. This profit distribution marks the company’s 18th consecutive annualized dividend hike.

Also, Suncor Energy’s board approved a new stock repurchase authorization program of up to additional C$2 billion, effective Mar 1.

Guidance

Suncor Energy expects its overall net production for 2020 in the range of 800,000-840,000 barrels of oil equivalent per day (Boe/d).

Moreover, the company anticipates its 2020 refiner throughputs in the band of 440,000-460,000 barrels per day (BPD). Output from oil sands operations is estimated within 420,000-455,000 barrels per day. Suncor Energy’s production from its stake in Fort Hills is projected in the range of 85,000-95,000 BPD while the same from Syncrude is estimated at 170,000-185,000 BPD.

For the ongoing year, this Alberta-based integrated player’s total capex is envisioned in the bracket of C$5.4-C$6 billion. It estimates to disburse in the range of C$4.55-C$4.95 billion for the upstream segment. Moreover, the company has plans to spend C$700-C$800 million on its downstream operations in 2020 while the corporate spending is assumed within C$150-C$250 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -28.13% due to these changes.

VGM Scores

Currently, Suncor Energy has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Suncor Energy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.