Refining underpins Shell’s Q3 as output stalls

World No 2 oil company Royal Dutch Shell struggled to deliver production growth in the third quarter and warned it was seeing signs of economic weakness “all around us”. Underlying net profit fell 6% but came in ahead of investor expectations thanks to the strength in refining margins, Shell reported yesterday. That margin strength was the result of supply shortages, not stronger demand, and the “downstream” refining performance masked a poor quarter for “upstream” oil and gas production and prices — the drivers of industry profits in the long term. Simon Henry, Shell’s chief financial officer, outlined continuing difficulties with the company’s Nigerian output and said the refining bright spot would be short-lived too. Shell reported current cost of supply (CCS) net profit, adjusted for charges, of $6.6bn, down from $7.0bn a year ago and ahead of analysts’ predictions of $6.3bn. The net charge for the quarter, at $432mn against a net gain of $245mn a year earlier, was largely down to a widely expected asset write-down to account for persistently weak US gas prices and for UK tax changes. Shell remains an extremely profitable company with healthy operating cash flow in the quarter of $9.5bn financing net capital investment of $8.0bn, and it has one of the best upstream output growth prospects in the sector over the coming three to four years. Production shut-ins in Nigeria due to security breaches there contributed to a fall in overall oil and gas production to 2.982mn barrels of oil equivalent a day from 3.012mn a year ago. Even leaving out the impact of Nigerian troubles, divestments and other one-offs, Shell’s oil and gas output grew only 1%. The struggle for output growth has been a feature of the third quarter earnings season for all the top oil companies so far. CFO Henry said fourth quarter output from Nigeria would be down by another 20,000 barrels a day due to flooding in the Niger delta. Shell paid out a third quarter dividend of 43 US cents a share, unchanged from the second quarter and against 42 a year ago. Shell shares were up 1.29% yesterday at 2,152.5 pence, outperforming the sector index which was down 0.01%. Rosneft Rosneft beat analysts’ expectations yesterday by reporting more than doubled quarterly profits to $5.8bn in advance of its controversial $61bn acquisition of Anglo-Russian rival TNK-BP. The report should help boost the confidence of one of the Russian state’s two most important energy companies on the eve of its planned alliance with the British group BP and emergence as a global super-major by buying TNK-BP. Rosneft will be responsible for more than 40% of Russia’s production and one-twentieth of the world’s oil output by the time it takes command of both the British and Russian stakes of the country’s third-biggest oil firm. The quarterly report was being watched particularly closely for any signs of residual weakness from a bad second quarter during which Rosneft made a rare loss due to export duty fluctuations and falling energy prices. The same export duty lag — applicable to all oil companies — was this time responsible for a jump in profit that further benefited from a 3.4% increase in output over the first nine months of the year. “Net profit in the third quarter of 2012 reached a five-year high of 181bn rubles ($45.8bn),” Rosneft said in a statement. The company had also attributed its gains to better cost controls and efficiency. Analysts had forecast a net profit of between $3.3 and $5.5bn for the July through September months. Rosneft has now earned 285bn rubles ($9.1bn) through the first nine months of the year — a 15.4% increase from the 2011 figure. The company reported a loss of $250mn in the second quarter of 2012 and a $2.8bn profit in the same third quarter of last year. Exxon ExxonMobil, the world’s largest publicly traded oil company, yesterday reported a lower quarterly profit that topped expectations, as higher margins from its refining arm countered a 7.5% decline in oil and gas output. Refining margins have improved as companies benefit from processing cheaper grades of crude oil from Canada as well as shale basins like the Eagle Ford in south Texas. Earnings from Exxon’s global refining business more than doubled to $3.2bn. The company’s exploration and production business had a profit of $5.97bn, down 29%. The Irving, Texas, company said its third-quarter earnings had fallen to $9.57bn, or $2.09 per share, from $10.33bn, or $2.13 per share, a year earlier. Analysts on average had expected a profit of $1.95 per share, according to Thomson Reuters. Oil and gas output declined 7.5% to 3.96mn barrels oil equivalent per day, Exxon said. The company and other global oil producers are buying oil and gas assets in North America as they struggle to raise production in a sector where vast energy resources are tightly controlled by countries like Brazil. Earlier this month, Exxon agreed to buy Celtic Exploration for $2.64bn. That deal will give Exxon access to some of the most promising shale oil and gas region in Western Canada. The company said it had bought back 58mn shares of its own stock for $5.1bn in the third quarter. Shares of Exxon edged down 0.8% to $90.41 in premarket trading. Marathon Petroleum Marathon Petroleum, which recently agreed to pay $2.5bn for BP’s Texas City refining complex, reported yesterday an 8% jump in quarterly profit, due in part to the sale of assets in Minnesota earlier this year. For the third quarter, the company posted net income of $1.22bn, or $3.59 per share, compared with $1.13bn, or $3.16 per share, in the year-earlier period. Revenue rose to $21.25bn from $20.65bn. Apache Apache Corp’s quarterly profit fell for the third time in a row as the oil and gas producer wrote down the value of its Canadian properties because of weakness in natural gas prices. US natural gas prices plunged from a peak of about $5 per million British thermal units in 2011, to a decade-low of $1.90 earlier this year, due to an oversupply and weaker demand. Despite depressed prices, Apache’s natural gas production increased marginally to 2.28bn cubic feet per day. This, at a time when most energy companies are aggressively looking to cut gas volumes and are shifting to oil-rich production. Net income fell to $161mn, or 41¢ per share, in the third quarter, from $983mn, or $2.50 per share, a year earlier. The company recorded a $539mn non-cash, after-tax write-down in the quarter. Excluding the charge and other items, Apache earned $2.16 per share. Revenue fell 3% to $4.18bn. Apache’s third-quarter production was 771,000 barrels of oil equivalent per day, up 2.4%. Atlas Air Cargo carrier Atlas Air Worldwide Holdings posted a higher quarterly profit yesterday but cut its full-year forecast, citing a softer-than-expected air freight market. Net income was $33.9mn, or $1.27 a share, in the third quarter, compared with $28.2mn, or $1.07 a share, a year earlier. Revenue rose 13% to $409.3mn. Atlas Air, which provides charter freight services to commercial airlines and the US military, said it now expects full-year profit to exceed $4.65 a share, compared with an August forecast calling for earnings to top $5.10 a share. Invesco Money manager Invesco said its third-quarter profit rose 2% as customers added almost $12bn to the firm’s funds. Net income attributable to common shareholders totaled $170.6mn, or 38¢ per share, up from $166.9mn, or 36¢ per share, in the same period a year ago, the Atlanta-based firm said in a statement. Excluding items, Invesco earned 42¢ per share. On that basis, analysts, on average, had expected 45¢, according to Thomson Reuters. Assets under management totaled $683bn, up 14% from a year earlier and almost 6% during the quarter. Customers added a net $9.4bn to long term funds and accounts and $2.3bn to money market accounts. Almost all of the long-term customer inflows went to bonds, which garnered $7.2bn in the quarter, and balanced funds, which got $3.7bn. Equity and alternative funds saw outflows of $800mn and $500mn respectively. Shares of Invesco closed at $24.32 on Wednesday on the New York Stock Exchange. The shares have gained 21% so far this year, outpacing a 12% advance in the Standard & Poor’s 500 Index. Chrysler Chrysler Group said yesterday that October car sales were the best in five years. Chrysler, an affiliate of Italy’s Fiat and the first of the major automakers to report, said October sales of 126,185 were up 10% from 114,512 a year ago. Chrysler said it was the 31st consecutive year-to-year increase in its monthly sales. Four of the company’s five brands — Chrysler, Dodge, Ram Truck and Fiat — saw sales gains in October. Jeep sales fell 5%. US auto sales are expected to show a rise of 11% for October, led by Toyota and Honda, which benefited from increased demand for compact cars, as gasoline prices remained high across the country. The annual sales rate is expected to be 14.9mn vehicles for the second straight month, according to a Reuters poll of economists. Disruptions from Hurricane Sandy, which hit the US East Coast on Monday, likely cut about 100,000 vehicle sales, but that demand will come back in November, Jefferies analyst Peter Nesvold said. Hillshire Brands Hillshire Brands reported a first-quarter net profit yesterday that beat Wall Street estimates by a wide margin, but the packaged meat company stood by its full-year outlook. The newly independent company, which makes Hillshire Farm lunch meat and Jimmy Dean sausage, said its sales trends were moving in the right direction, its key brands were gaining strength and its costs were coming down. Hillshire Brands still expects fiscal 2013 earnings of $1.40 per share to $1.55 per share. Net income was $53mn, or 43¢ per share, in the fiscal first quarter ended on September 29, compared with a loss of $220mn, or $1.86 per share, a year earlier. Excluding items, earnings were 51¢ per share in the latest quarter. On that basis, analysts on average were expecting 33¢ per share, according to Thomson Reuters. Net sales fell 1.4% to $1.01bn. Stripping away the impact of the of businesses sold in the past year, sales would have grown. BT BT had to rely on deep cost cuts to maintain its full-year earnings outlook yesterday after an adverse regulatory ruling and weak European corporate demand sent revenues down 9% in the second quarter. The top line result was even worse than the 7% drop the market was expecting, but investors were impressed by BT’s ability to deliver efficiency savings and the shares rose 6% in early trade. Chief Executive Ian Livingston said it was a solid quarter given the continued tough conditions for the company’s corporate customers. Britain’s biggest fixed-line telecoms company posted headline revenue of £4.47bn ($7.2bn), £100mn short of market forecasts. But pretax profit rose by a better-than-expected 7% to £608mn. BT’s revenues were hit by a triple whammy of recession, regulation and rain. A judgment in UK courts on charges for terminating some mobile phone premium calls also went against the company, which impacted revenue by £40mn year-on-year in the quarter. And rain increased the number of repairs needed on phone networks, resulting in a backlog of new installations, the company said. The combination meant BT had to abandon its hope that underlying revenue excluding transit would show an improving trend on the minus 1.9% seen last year for the full year, but said the second half would still see an improvement. The group was able to grow profit by cutting its underlying costs by 10%, the best performance in terms of efficiency in recent quarters. It also maintained its full-year forecasts, to grow adjusted core earnings and to deliver free cash flow in line with last year, and lifted its interim dividend by 15%. Shares in the company, which have declined by more than 8% in the last month, were 6.7% higher at 226.8 pence at 1130 GMT, the top riser in the FTSE 100 index. Pfizer Pfizer reported yesterday quarterly revenue well below Wall Street expectations, on disappointing sales of its Prevnar pediatric vaccine and a sharp pullback in emerging market revenue. Results were also hurt by weaker-than-expected sales of Pfizer’s Lipitor cholesterol fighter, which has been facing cheaper generics since late last year. The largest US drugmaker earned $3.21bn, or 43¢ per share, in the third quarter. That compared with $3.74bn, or 48¢ per share, in the year-earlier period, when the company recorded a $1.3bn gain on the sale of its Capsugel business. Excluding special items, Pfizer earned 53¢ per share, matching the average analyst forecast, according to Thomson Reuters. Global sales fell 16% to $13.98bn, well below Wall Street expectations of $14.64bn. Revenue from emerging markets — countries whose fast-expanding economies are a mainstay for Pfizer growth — fell 2% to $2.39bn as the stronger dollar cut into the value of sales. By contrast, emerging market sales had jumped 8% in the prior quarter. Although Pfizer has hitched its future largely to sales in developing markets such as China, India, Eastern Europe and South America, sales are highly variable there because of fluctuating interest rates and a range of regional factors. Sales of Prevnar 13 fell 14% to $868mn, while sales of its older Prevnar 7 vaccine dropped 17% to $81mn. The widely used vaccines, obtained through Pfizer’s merger in 2009 with Wyeth, are now Pfizer’s second-biggest-selling franchise. Lipitor sales plunged 71% to $749mn. It had been the world’s biggest drug until its US patent lapsed in late November, opening the floodgates to cheaper generics. Teva Pharmaceutical Teva Pharmaceutical Industries, the world’s biggest generic drug maker, posted adjusted quarterly profit that beat expectations as strong US revenue offset lower European generic sales. Shares in Teva were up 1.4% to $41 in early New York trade yesterday. Chief financial officer Eyal Desheh said an eagerly anticipated long-term plan to reshape the company would be unveiled on December 11 in New York. Teva owes much of its growth in recent years to several multibillion-dollar acquisitions, including last year’s $6.5bn purchase of US specialty drugmaker Cephalon. The company earned $1.28 per share, excluding one-time items, in the third quarter, compared with $1.25 a year earlier. Revenue rose 14% to $5.0bn. Including one-time items Teva lost 9¢ a share due to two significant charges: a $670mn provision for a possible loss relating to pending patent litigation and a $481mn impairment mostly related to research and development acquired from Cephalon. Teva declared a quarterly dividend of 1.0 shekel (25.7¢) a share, identical to the second quarter. Avon Avon Products slashed its dividend by nearly 74% yesterday, while also announcing measures to cut costs by at least $400mn within three years in moves designed to shore up its finances while it new chief executive officer works on a turnaround. The company also reported a steep plunge in third-quarter earnings, hurt by higher product costs and unfavorable exchange rates. Shares of Avon fell 1.9% to $15.19 in premarket trading. Excluding items such as an impairment charge for its disappointing China results, Avon reported a profit of 17¢ a share, below the analysts’ average estimate of 22¢, according to Thomson Reuters. There were some bright spots. Companywide, Avon sold 1% more items, and the number of sales representatives fell 1%, a more modest drop than in recent quarters. Excluding the impact of currency fluctuations, sales were higher in Brazil, Avon’s top market, and the company signed more sales “reps.” But elsewhere, the company’s problems continued. In North America, sales fell 8%, and in Russia, the company faced another reduction in the size of its sales force. In China, a fast-growing cosmetics market, sales fell 31%. Avon reported a net profit of $31.6mn, or 7 cents per share, compared with $164.2mn, or 38 cents per share, a year earlier. Revenue fell to $2.55bn from $2.76bn. Estée Lauder Estée Lauder yesterday lowered the top end of its full-year sales forecast, pointing to uncertainty in some key markets. The company, known for brands as La Mer and MAC, now expects sales this year will rise 6% to 7% on a constant currency basis, compared with an earlier forecast of a range of 6% to 8%. Still, Estee Lauder reported a higher than expected quarterly profit, helped by large gains in US and China that helped make up for weakness in Europe. The company reported net profit of $299.5mn, or 76¢ a share, in the first quarter, ended September 30, compared with $278.6mn, or 70¢ a share, a year earlier. Excluding some restructuring charges, Estee Lauder had a profit of 79¢, beating analysts’ estimates of 77¢, according to Thomson Reuters. Revenue rose 2.9% to $2.55bn. The company also raised its annual dividend to 72¢ per share from 52.5¢. Pentair Pentair reported a higher-than-expected profit yesterday in a report that does not yet include results from the Tyco International flow control business, which merged with the company last month. Pentair, which makes water treatment systems and thermal controls, reported net earnings of $30.4mn, or 30¢ per share, down from $51.1mn, or 51¢ per share, a year earlier. Excluding items, Pentair earned 64¢ a share, 1¢ ahead of Wall Street’s estimate, according to Thomson Reuters. Sales fell to $866mn from $891mn, with foreign exchange accounting for the decline. Pentair last month merged with Tyco’s former flow control unit, doubling in size and moving the company’s inCorp to Switzerland. Pentair’s fourth quarter will include results from both businesses. The integration is well under way, and Pentair is on track to earn $5per share by 2015, it said. Sirius Sirius XM Radio reported a lower net profit as the satellite radio broadcaster recorded a charge to repay some debt, but said revenue jumped 14% on strong subscriber growth. Sirius XM shares, which closed at $2.80 on the Nasdaq on Wednesday, were up 2% at $2.85 before the bell. The company is in the middle of a management shakeup after Chief Executive Mel Karmazin said last week that he will step down following reported problems with media mogul John Malone’s Liberty Media Corp, which is trying to wrest full control of Sirius. Liberty, Sirius’s largest shareholder with a stake of just under 50%, has argued the company should be more aggressive about pursuing better technology and expanding internationally. It had filed a petition with US regulators earlier this year to replace the company’s board. Sirius said last month it added 446,00 net subscribers in the third quarter and raised its full-year forecast to 1.8mn net additions. The company, which gets the vast majority of its subscribers through new US car sales, said average revenue per subscriber rose to $12.14, in the third quarter, from $11.97 in the prior quarter. Net income fell to $74.5mn, or 1 cent per share, in the third quarter, from $104.2mn, or 2¢ per share, a year earlier. The recent third-quarter net profit included a loss on repayment of debt of $107mn. The New York-based company, which competes with free Internet radio services such as Pandora Media, said total revenue rose 14% to $867.4mn. Analysts expected revenue of $865.7mn, according to Thomson Reuters. CBOE Holdings CBOE Holdings, which runs the biggest and oldest US stock-options market, said yesterday that third-quarter earnings fell 16% as trading dropped, but higher per-contract fees helped it beat Wall Street expectations. The operator of the Chicago Board Options Exchange reported a profit of $37.7mn, or 43¢ a share, excluding one-time tax items. That was down from $44.7mn, or 50¢ a share, a year earlier. Analysts had on average had expected per share profit of 38¢, according to Thomson Reuters. Trading was down 22% in the quarter from a year earlier, but revenue dropped at only half that pace, as CBOE boosted fees on its exclusive contracts, including options on the Standard & Poor’s 500 Index. CBOE also stole business from its competitors, grabbing 29.3% of the market in the third quarter, up from 27.5% in the prior year quarter, it reported. Per-contract fees rose 1%. The adjusted financial results excluded a tax benefit of $7.7mn in the third quarter of 2012 and a tax charge of $4.2mn a year earlier. BCE BCE, Canada’s biggest telecom provider, reported yesterday lower profit compared with a year earlier, when lower income tax expenses had boosted earnings, but revenue rose, thanks in part to wireless growth. Operating results at Bell Canada’s parent were lifted by its media segment and wireless, where the company won new customers and upgraded more subscribers to lucrative smartphone contracts. Smartphone growth helped boost revenue as BCE’s wireless customers paid an average of C$57.30 each month, up from C$55.01 a year earlier. Overall, BCE’s earnings before interest, taxes, depreciation and amortization rose 4.0%. Net income attributed to shareholders for the third quarter fell to C$569mn ($569mn), or 74 Canadian cents a share, compared with C$642mn, or 83 Canadian cents a share, a year earlier. Excluding severance and acquisition costs and other items, adjusted earnings fell to C$588mn, or 76 Canadian cents a share, compared with C$724mn, or 93 Canadian cents, a year earlier. Analysts, on average, had been expecting earnings of 77 Canadian cents a share, according to Thomson Reuters. Operating revenue rose 1.5% to C$4.98bn, slightly above average analyst estimate of C$4.94bn. Cigna Health insurer Cigna Corp’s quarterly profit more than doubled as its acquisition of Medicare specialist HealthSpring drove growth in premiums and fees, prompting the company to raise its full-year profit outlook for the third time this year. Premium and fees revenue at its health care segment jumped 51%, driven by contributions from HealthSpring, which Cigna acquired for $3.8bn earlier this year. Cigna’s total third-quarter revenue rose 31% to $7.4bn. Revenue at its international segment rose 22%, and disability and life segment revenue increased 9%. The insurer now expects full-year adjusted earnings of $5.70 to $5.90 per share, up from its prior forecast of $5.25 to $5.60 per share in August. Third-quarter net income rose to $466mn, or $1.61 per share, in the third quarter, from $183mn, or 67 cents per share, a year earlier. Excluding items, the company earned $1.69 per share, handily beating analysts’ estimates of $1.36, according to Thomson Reuters. Shares of Cigna, which has a market capitalisation of $14.71bn, closed at $51 on Wednesday on the New York Stock Exchange. Alliant TechSystems Alliant TechSystems, a supplier of ammunition and booster rockets, reported a lower quarterly profit yesterday as sales fell in two large divisions. Net income came to about $65mn, or $2 a share, in the fiscal second quarter ended September 30, compared with about $80mn, or $2.43 a share, a year earlier, the company said yesterday. Total quarterly sales were down 4% to $1.1bn. Sales in the aerospace group fell 7% to $310mn as revenue from Nasa declined. Defense group sales decreased 8% to $484mn. Sporting group sales rose 11% to $275mn. Kellogg Kellogg reported higher quarterly profit yesterday, helped by strong performance in its Pringles business. The world’s largest cereal maker reported net income of $296mn, or 82¢ per share, for the third quarter, compared with $290mn, or 80¢ per share, a year earlier. The results included 4¢ per share in integration costs related to the acquisition of Pringles. The maker of Corn Flakes, Eggo waffles and Keebler cookies recalled some packages of Mini-Wheats in October due to the possible presence of fragments of metal mesh. It said the recall cost it 6¢ per share, which was offset by better-than-expected performance of Pringles. Kellogg reaffirmed its outlook for full-year earnings per share of $3.18 to $3.30.