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Shell’s 1Q16 Earnings Slump but Beat Estimates

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Shell’s 1Q16 performance

Royal Dutch Shell (RDS.A) released its 1Q16 results on May 4, 2016. In this series, we’ll take an overall view of the 1Q16 earnings but first, let’s look at Shell’s 1Q16 performance versus analysts’ estimates.

In 1Q16, Royal Dutch Shell’s (RDS.A) revenues missed Wall Street analysts’ estimates by 13%. In the quarter, Shell’s reported EPS stood at $0.14. However, when adjusted to CCS EII (current cost of supplies excluding identified items), its EPS stood at $0.44 compared to its estimated EPS of $0.31, exceeding the analysts’ estimates.

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Shell’s 1Q16 earnings review

Shell’s earnings fell by 89% over 1Q15 to $0.48 billion in 1Q16. The earnings are then adjusted on a CCS basis excluding identified items.

According to Shell, “CCS earnings exclude the effect of changes in the oil price on inventory carrying amounts.” Identified items include divestment gains and losses, impairments, redundancy, and restructuring costs.

The definition of “identified items” was changed by Shell in 2016, to include the impact of exchange rate movements on certain deferred tax balances.

On a CCS basis, Shell posted an adjusted profit of $1.6 billion in 1Q16, a fall of 58% over 1Q15. This was due to the upstream segment, which reported a loss in 1Q16. Plus, Shell’s integrated gas and downstream segments saw their earnings fall in 1Q16 over 1Q15. We’ll discuss segment-wise performance in the next part.

Shell’s peers ExxonMobil (XOM) and BP Plc (BP) have posted 63% and 78% lower adjusted EPS in 1Q16 compared to 1Q15, respectively. Plus, Chevron (CVX) reported a loss in 1Q16. The PowerShares Dynamic Large Cap Value ETF (PWV) has ~11% exposure to energy sector stocks.

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