Europe’s largest oil company Royal Dutch Shell plc (RDS-A - Free Report) reported weaker-than-expected second-quarter earnings as lower downstream results more than offset strong contributions from the upstream and the integrated gas segment.

The Hague-based Shell reported earnings per ADS (on a current cost of supplies basis, excluding items - the market’s preferred measure) of $1.12, below the Zacks Consensus Estimate of $1.41 but above the year-ago profit of 88 cents.

Revenues of $99,268 million were 37% above the second-quarter 2017 sales of $72,702 million.

Meanwhile, operating expenses increased in the quarter, coming in at $10,006 million, compared to $9,548 million in the corresponding period last year.

However, investors looking for clarity on Shell’s promised share buybacks were in for some good news as the company will start the program to repurchase at least $25 billion in common stock in the period 2018-2020.

Royal Dutch Shell PLC Price, Consensus and EPS Surprise

Royal Dutch Shell PLC Price, Consensus and EPS Surprise | Royal Dutch Shell PLC Quote

Segmental Performance

Upstream: Upstream segment recorded a profit of $1,457 million (excluding items) during the quarter, soaring from the paltry $339 million (adjusted) achieved in the year-ago period.

This primarily reflects the impact of higher oil realizations. At $66.09 per barrel, the group’s worldwide realized liquids prices were 45% above the year-earlier levels. Apart from pricing, results were also buoyed by lower depreciation and operating costs. 

However, asset sales reduced its oil and gas production. Shell’s upstream volumes averaged 2,488 thousand oil-equivalent barrels per day (MBOE/d), 7% lower than the year-ago period. Liquids contributed approximately 61% to Shell’s total volumes, while natural gas accounted for the remaining portion.

Downstream: In the downstream segment – that focuses on refining, marketing and retailing – the Anglo-Dutch super-major reported adjusted income of $1,660 million, 34% less than the $2,529 million earned in the year-ago period. The negative comparison reflects the impact of higher operating costs, foreign currency translation effects and lower trading contributions.

Integrated Gas: The Integrated Gas unit reported adjusted income of $2,305 million, almost doubling from the $1,169 million in April-June quarter of 2017. Results were favorably impacted by increase in commodity prices, higher LNG production, as well as increased contributions from trading.

Cash Flow

During the quarter under review, Shell generated cash flow from operations of $9,500 million, returned $3,900 million to shareholders through dividends and spent $5,771 million on capital projects. Despite falling from the year-ago period, the Zacks Rank #2 (Buy) company’s resilient cash generation has helped it to cover cash dividend payments and interest. Shell has already aborted its two-and-a half-year long scrip dividend program as cost-containment efforts and divestment strategies have paid off. Importantly, the group raked in $9,529 million in free cash flow during the second quarter.

Balance Sheet

As of Jun 30, 2018, the company had $19,468 million in cash and $80,471 million in debt (including short-term debt). Net debt-to-capitalization ratio was approximately 23.6%, down from 25.8% a year ago. The improvement in the group’s debt ratio was helped by cost cuts and asset sales.  

Earnings Schedules of Other Oil Supermajors

Among the major integrated players, ExxonMobil (XOM - Free Report) and Chevron (CVX - Free Report) are scheduled to release tomorrow, while BP plc (BP - Free Report) will report second-quarter earnings early next week.