Why Is Suncor Energy (SU) Down 5.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Suncor Energy (SU). Shares have lost about 5.2% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Suncor Reports Wider-Than-Expected Q2 Loss, Maintains View

Suncor Energy reported loss in second-quarter 2020 results. The company’s operating loss per share of 71 cents was wider than the Zacks Consensus Estimate of a loss of 44 cents. However, the year-ago bottom line was a profit of 60 cents per share. This downside in the performance is due to lower commodity prices and reduced upstream production.

Quarterly operating revenues of $3.06 billion fell short of the Zacks Consensus Estimate of $4.07 billion. Moreover, the top line dropped 59.4% from $7.55 billion in the year-ago quarter.

Upstream

Total upstream production in the reported quarter was 655,500 barrels of oil equivalent per day (Boe/d), down 18.5% from the prior-year level of 803,900 Boe/d. This fall in output was due to a drop in the Oil Sands production. Moreover, this upstream unit recorded an operating loss of C$51 million against earnings of C$247 million in the prior-year quarter, thanks to weak price realizations and mandatory production curtailments.

Notably, Fort Hills production came in at 47,300 barrels per day (BPD) in the quarter, higher than 89,300 BPD registered in the year-ago period. Output from Syncrude operations scaled down to 119,500 Bbl/d from 188,700 Bbl/d a year earlier due to unplanned maintenance. Oil Sands operations volume was 396,300 Bbl/d compared with 416,000 Bbl/d in the year-earlier quarter. Operating costs per barrel dipped to C$25.8 in the quarter under review from C$27.8 in the corresponding period of 2019. However, upgrader utilization declined to 81% from 88% in the comparable quarter of last year.

Suncor Energy’s Exploration and Production segment (consisting of International, Offshore and Natural Gas segments) produced 101,800 Boe/d compared with 111,700 Boe/d in the prior-year quarter. Results were unpleasant due to lower output levels from Terra Nova natural declines in the United Kingdom. The same was partially offset by higher output at Hebron.

Downstream

Operating earnings from the downstream unit plunged to C$49 million from the year-ago figure of C$677 million due to FIFO losses associated with the significant slump in commodity prices. Suncor Energy recorded soft refined product sales in the quarter under consideration, which fell to 438,800 Bbl/d from the prior-year level of 508,100 Bbl/d due to compressed refinery utilization levels.

Crude throughput came in at 350,400 Bbl/d in the second quarter compared with 399,100 Bbl/d in the year-ago period. Also, refinery utilization was 76%.

Expenses

Total expenses in the reported quarter plummeted to C$5.3 billion from C$7.97 billion in the year-earlier period. This upside is mainly led by purchases of crude oil and product costs as well as operating, selling and general costs.

Financials

Importantly, cash flow from operating activities summed C$768 million in the second quarter, down from the prior-year figure of C$3.43 billion. The company incurred capital expenditure worth C$671 million in the quarter under discussion.

As of Jun 30, 2020, Suncor Energy had cash and cash equivalents worth C$1.85 billion and total long-term debt of C$15.97 billion. Its total debt to total capital was 30.4%.

During the quarter under review, the company distributed C$320 million in dividends.

Guidance

Suncor Energy retains its sales, production and operating cost view, which is indicative of strengthened consumer demand and managed upstream production. Its total production is estimated within 740,000-780,000 BPD.

The unexpected descent in oil prices and deterioration in global demand due to the novel coronavirus outbreak are taking a toll on the oil and energy players. The companies are forced to delay expansion plans and cut capital expenditures to sustain liquidity. Therefore in March, Suncor Energy trimmed its 2020 capital spending outlook by nearly 26% to the C$3.9-C$4.5 billion range after reckoning the ongoing decline in commodity prices.

In an attempt to maintain a strong balance sheet position during the continued market turbulence, this Alberta-based integrated player further lowered its total capex for the current year to the C$3.6-C$4 billion band in the June quarter. The company reiterates its capex guidance on the earnings call.

The company progressed substantially in containing operating costs in the second quarter and remains on track to achieve its $1-billion operating cost-saving target by 2020 end.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 58.21% due to these changes.

VGM Scores

Currently, Suncor Energy has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Suncor Energy has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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