Eni SpA’s (E) second-quarter 2014 adjusted earnings from continuing operations of 66 cents per American Depository Receipt/ADR failed to meet the Zacks Consensus Estimate of 80 cents. However, quarterly results increased from the year-ago EPADR of 42 cents. The decline was mainly due to lesser production and lower realized average prices.
Total revenue in the quarter decreased 6.3% to €27.4 billion ($37.7 billion) from the year-ago revenue of €28.3 billion.
Operational Performance
Total liquids and gas production in the quarter was 1,584 thousand barrels of oil equivalent per day (MBoe/d), down 3.9% year over year, mainly due to political events as well as mature field declines.
Liquids production was 813 thousand barrels per day (MBbl/d), down 3.8% from the year-ago level of 845 MBbl/d. Natural gas production decreased 4% year over year to 4,234 million cubic feet per day (MMcf/d). Gas sales were 19.09 billion cubic meters (Bcm), flat with the year-ago quarter.
Financials
As of Jun 30, 2014, the company had cash and cash equivalents of €6.5 billion and long-term debt (including current portions) of approximately €20 billion. The debt-to-capitalization ratio was approximately 24%.
In the reported quarter, net cash generated by operating activities from continuing operations amounted to €3.6 billion. Capital expenditure totaled €2.98 billion (5.5% higher year over year).
Company Outlook
Eni believes that a certain degree of ambiguity still looms with respect to weak growth prospects, particularly in the Euro zone, and volatile market conditions. This Italian giant expects the uncertainty to prevail in the European gas, refining and marketing and chemicals sectors. Overall demand will likely remain weak due to the ongoing economic dormancy and the appreciation of Euro.
The company expects 2014 oil and natural gas production to be in line with 2013. This however excludes the impact of the divestment of Eni’s interest in the Russian gas assets of Artic Russia.
Worldwide gas sales are expected to fall from the 2013 level. The downside would come from both the large customers and retail segments, considering an ongoing demand downturn and oversupplies, particularly in Italy.
For 2014, refining throughputs are expected to decline from the 2013 level due to capacity reductions and plants’ optimization process. This would be partially offset by higher output at the new EST technology conversion plant at the Sannazzaro Refinery.
The company expects full-year capital spending to be lower than 2013. Eni had 12.75 billion euros in capital expenditure and 0.32 billion euros in financial investments in 2013.
Zacks Rank
Eni currently carries Zacks Rank #3 (Hold). One can consider better-ranked energy sector stocks such as Weatherford International plc (WFT), Sasol Ltd. (SSL) and Cameron International Corp. (CAM). All these stocks currently sport a Zacks Rank #1 (Strong Buy).
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