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Why Are Analysts Projecting Falling Earnings for BHP Billiton?

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Year-to-date stock performance

BHP Billiton (BHP) stock has risen 2.4% YTD (year-to-date) through December 21. The SPDR S&P Metals and Mining ETF (XME) has fallen 29.3% YTD.

Although BHP’s stock performance in the first three months of the year was negative due to weak iron ore prices, it picked up in April. More recently, the company completed a $5.2 billion off-market buyback and announced a dividend of $1.02 per share, also supporting its stock.

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Previously, on July 26, BHP announced that it would exit its US onshore oil and gas assets. Its US (SPY) assets include the Eagle Ford Shale, Haynesville, the Permian Basin, and Fayetteville. BP (BP) beat out its rivals Royal Dutch Shell (RDS.A) and Chevron (CVX) to acquire BHP’s US onshore oil and gas assets.

Revenue estimates

Analysts expect BHP to generate revenue of $42.6 billion in fiscal 2019 (which ends on June 30, 2019), implying a fall of 2.4% YoY (year-over-year). In comparison, BHP’s revenue rose 14.0% YoY in fiscal 2018. Some of the lower revenues going forward can be attributed to BHP’s sale of its offshore oil and gas assets.

EBITDA estimates

In line with the fall in BHP’s revenue, its EBITDA expectations are also declining. Analysts expect BHP to generate $22.6 billion in EBITDA in fiscal 2019, implying a margin of 53.1%, similar to its margin in fiscal 2018.

This value also reflects a fall of 2.5% YoY. In its fiscal 2018 results, BHP highlighted its expectation of rising costs in its oil, copper, and coal units. These costs could also lead to lower EBITDA going forward. The estimates for BHP’s EBITDA for fiscal 2020 show an even larger potential fall of 13.7% YoY.

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