Total Beats Earnings Forecasts; Sales Drop on Energy Prices
French energy giant Total, S.A. (NYSE: TOT – $47.19) reported second quarter adjusted net profit of $0.90 per share, down from $1.34 in the prior year period but came in higher than the $0.74 per share Street estimate. Sales were $37.22 billion, vs. $44.72 billion reported for the same period last year. Upstream, production increased by more than 5% compared to the second quarter 2015. Obtaining a 30% interest in the Al-Shaheen concession in Qatar for 25 years was a major success, strengthening the company’s presence in the Middle East. Total expects the startup of its Bolivian and Kazakhstan plays to begin in the second half of the year and anticipates upstream production growth of 4%. In the Downstream sector, results and cash generation remained strong compared to the first quarter 2016. The acquisition of retail and logistics assets in East Africa strengthens its position as marketing the leader on the continent. The company expects refining margins to be lower at the beginning of the third quarter due to high inventory levels, reduced capacity at the Lindsey refinery in Britain and the conversion of the La Mede refinery to a bio-refinery to be finalized in the later part of 2016.
Fundamentals ought to improve beginning in 2017 and beyond. Total’s balance sheet is healthy, boasting ample cash reserves and modest leverage. The dividend, yielding 5.8%, appears safe for now, but low oil prices are putting pressure on maintaining the payout without borrowing. Acquisitions will likely remain a staple in the long-term growth story. Most recently, Total announced the acquisition of Saft Group, a manufacturer of advanced technology batteries valued at $1.1 billion, in an effort to diversify its operations. Prospects are favorable looking out to late decade, but the ADRs will probably underperform the year-ahead broader market as oil prices continue to fall.