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Why Encana’s Profits Fell 23% in 4Q16

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Updated

Net incomes

Encana (ECA) announced its 4Q16 earnings on February 16, 2017, before the market opened. It reported better-than-expected profits of ~$85 million. Wall Street analysts were expecting lower profits of ~$34 million. On a year-over-year basis, ECA’s 4Q16 profit fell ~23% compared to a profit of ~$111 million in 4Q15. However, on a sequential basis and excluding any one-time items, ECA’s 4Q16 profit increased ~166% from ~$32 million in 3Q16.

For full-year 2016, ECA reported higher adjusted net income of ~$76 million, or -$0.09 per share, from approximately -$61 million, or -$0.07 a share, in 2015.

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Revenues

For 4Q16, ECA reported adjusted revenues of ~$822 million, ~6% better than Wall Street analyst consensus for revenues of ~$775 million. ECA’s 4Q16 revenues are ~20% lower compared to 4Q15 revenues of ~$1.03 billion. Even compared sequentially with 3Q16, ECA’s 4Q16 revenues are ~16% lower. Encana’s production (USO) (UNG) fell significantly in 4Q16, which hurt revenues. We’ll take a closer look at ECA’s production in the next part of this series.

For 2016, Encana reported revenues of ~$2.92 billion, ~34% lower than ~$4.42 billion in 2015. ECA’s peer Devon Energy (DVN), which also operates in the Permian Basin, reported revenues of ~$10.3 billion, ~22% lower than its ~$13.2 billion in 2015.

In this series…

Having analyzed Encana’s 4Q16 earnings and revenue performance, in this series, we’ll also look at Encana’s production performance, capital guidance for 2017, margins, cash flows, Wall Street analyst ratings, and price forecasts using implied volatility.

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