Eni SpA (E) reported third-quarter earnings per ADR of 94 euro cents ($1.21), compared with 64 euro cents (92 cents) in the year-earlier quarter and the Zacks Consensus Estimate of $1.03.
The quarterly earnings surpassed the consensus estimate and year-earlier results on the back of solid contribution from the exploration and production operations, improvement in crude prices and a stronger U.S. dollar versus the euro. However, the Gas & Power segment showed significant weakness as margins and sales volumes were hit by strong competitive pressures.
Operational Performance
Total production in the quarter was 1,679 Mboe/d (58% liquids), essentially flat year over year. Despite flat volumes, organic growth was noticed in Nigeria, Congo and Italy. Liquids production in the quarter was 948 Mbbl/d, slightly down year over year. However, natural gas production was up 1.7% at 4,203 MMcf/d.
The company’s gas sales during the quarter were 18.6 billion cubic meters (Bcm), down 17.4% year over year due mainly to lower sales volumes in the Italian market. The Refining and Marketing segment continued to experience weakness in the third quarter as sale of refined products were depressed due to poor refining margins.
In the reported quarter, net cash generated by operating activities amounted to €2.41 billion ($3.11 billion). Capital expenditure was €2.85 billion ($3.68 billion) in the quarter. Eni paid €1.81 billion ($2.34 billion) as dividend in the quarter. Total debt at the end of the quarter was €25.3 billion ($32.6 billion).
Outlook
Eni experienced significant exploratory success in the third quarter, especially in Venezuela, Angola and United Kingdom. The company sold some of its non-core assets to augment upstream activity.
Management plans to deploy more capex toward upstream activities. Eni also aims at reducing its leverage to ensure a strong credit profile.
However, we are concerned about Eni’s refining business as the underlying fundamentals are still weak. Moreover, the Gas & Power segment is also facing strong competitive pressure from its domestic peers. Our Neutral recommendation remains unchanged at this stage with the Zacks #3 Rank (Hold).
ENI SPA-ADR (E): Free Stock Analysis Report
Zacks Investment Research
