Total, SA Reports Strong Quarterly Results

TOT French energy giant Total, SA (NYSE: TOT – $48.55) said deep cost cuts and rising output helped it to ride a modest oil price rally driven by OPEC. The integrated oil major reported revenues of $31.83 billion, versus $34.9 billion in the year-ago quarter, but well ahead of the $30.74 billion consensus. Earnings per share came in at $0.84, down from $1.17 last year, beating Street views of $0.79. While the slight recovery in oil prices helped Total during the quarter, the environment for its refining business deteriorated, with refining margins shrinking 27%. Total had generated strong profit from its refineries in previous quarters, helping to offset the negative effects of low oil prices. However, its renewable energy unit provided the company with another profit source during the quarter. The unit, which usually generates operating losses, contributed $100 million to Total’s adjusted net operating income. To offset the effects of falling oil and gas prices, Total is carrying out a widespread cost-cutting program at all its units while scrambling to extract more oil from existing fields, accelerating new developments and reducing capital investment. That strategy has helped it to book net profit of over $1 billion dollars in 2014 and 2015 and to remain profitable so far in 2016. The company says its cost reduction program is ahead of schedule and will deliver its $4 billion savings target by 2018. Thus, the company is well placed to benefit from the small oil-price rally from late September, when OPEC agreed to moderate output. The company also struck a strategic alliance with Brazil’s Petrobras during the period.

       The fundamental outlook over the pull to late decade seems promising and the company’s balance sheet is in good standing. The degree of operating leverage is more than reasonable compared to the industry average. And there are plenty of cash reserves to support acquisition activity, as well as its attractive dividend. Those with a conservative bent, interested in quarterly income and able to assume a long-term investment horizon, may find these high-quality ADRs appealing from a total return perspective. The dividend remained steady for the upcoming quarter and yields 5.61%, at current quotations.

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