We are still in the early innings of the earnings season, with only ~15% of S&P 500 companies having returned their Q4 2023 earnings scorecards. According to FactSet data, of these companies, 62% have reported earnings above Wall Street estimates, considerably lower than the 5-year average of 77% and the 10-year average of 74%.
The (blended) net profit margin for the S&P 500 for Q4 2023 is 10.7%, which is below the previous quarter’s net profit margin (12.2%), below the year-ago net profit margin (11.2%), and below the 5-year average (11.5%).In terms of revenues, 62% of companies have reported actual revenues above estimated revenues, below the 5-year average (68%), and below the 10-year average (64%).
Unfortunately, similar to recent seasons, the Energy sector is once again printing some underwhelming numbers. The sector is expected to post Q4 2023 net profit margin of 9.6% vs.13.0% for Q4 2022, the market’s second largest margin contraction only exceeded by the Financial sector which is expected to report Q4 2023 net profit margin of 12.6% vs. 16.6%. Five sectors are reporting a year-over-year decline in earnings, led by the Energy, Materials, Health Care, and Financials sectors.
Related: Russia Builds Out Arctic Oil Route As Middle East Tensions Escalate
In terms of revenues, the Energy sector has recorded the biggest downward revision in revenue estimates ( from -5.5% to -7.5%). According to FactSet, downward revisions to revenue estimates for Chevron Corp. (NYSE:CVX) (from $52.28 billion to $50.93 billion), ExxonMobil Corp. (NYSE:XOM)( from $91.61 billion to $90.35 billion), Marathon Petroleum Corp. (NYSE:MPC) (from $35.23 billion to $34.18 billion), and Valero Energy Corp. (NYSE:VLO) (from $36.73 billion to $35.86 ) have been the biggest contributors to the decrease in revenues for the sector since December 31.
OFS Companies Impress
Luckily for energy bulls, it’s not all doom and gloom: oilfield services companies have returned pretty decent reports that paint a picture of an industry in the pink of health.
Shares of Houston, Texas-based Halliburton Company (NYSE:HAL) have jumped 8.6% after the company reported Q4 Non-GAAP EPS of $0.86, beating the Wall Street consensus by $0.06 while revenue of $5.74B (+2.9% Y/Y) missed by $40M. For the full year, Haliburton reported total revenue of $23.0B, good for a 13.4% Y/Y increase while operating income clocked in at $4.08B, good for a robust 50.8% Y/Y increase.
Halliburton hiked first-quarter FY24 dividend per share by 6.25% to $0.17, payable on March 27, 2024, and repurchased around $250 million of common stock.
Even better, Halliburton has issued an upbeat outlook:
"I am excited about 2024. The outlook for oilfield services demand remains strong. I expect we will deepen and strengthen our value proposition, and generate significant free cash flow," said Jeff Miller, Halliburton Chairman, President and CEO.
Halliburton’s OFS peers did not disappoint.
Schlumberger Limited (NYSE:SLB) shares have been rallying after the company reported healthy earnings on surging international growth. Fourth quarter non-GAAP EPS of $0.86 beat by $0.03 while revenue of $8.99B (+13.8% Y/Y) beat by $50M. Full-year revenue of $33.14 billion increased 18%Y/Y while full-year GAAP EPS of $2.91 increased 22%Y/Y. Full-year adjusted EBITDA of $8.11 billion increased 25%Y/Y while free cash flow clocked in at $4.04 billion
“As global energy demand continues to increase, international production is expected to play a key role in meeting supply through the end of the decade. Notably, we anticipate record investment levels in the Middle East extending beyond 2025, with significant expansion in Saudi Arabia, the United Arab Emirates, Iraq, and Kuwait. Offshore remains another distinct attribute of this durable growth cycle, serving as an important source for production growth and capacity additions, and we expect strong activity to continue in Brazil, West Africa, the Eastern Mediterranean, the Middle East, and Southeast Asia," the company said at its earnings call.
Meanwhile, the Baker Hughes Company (NASDAQ:BKR) reported Q4 Non-GAAP EPS of $0.51, $0.03 higher than the Wall Street consensus while revenue of $6.84B (+15.7% Y/Y) missed by $90M. IET orders clocked in at $3,030 million, marking the fifth consecutive quarter above $3 billion; Adjusted EBITDA came in at $1,091 million, the first time in the company’s history the quarterly metric exceeded the $1 billion-mark. Cash flows from operating activities were $932 million while free cash flow was $633 million.
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Baker Hughes announces shareholder distributions of $521 million, including $320 million of share repurchases.
"International strength is led by the Middle-East and Latin America and is powered by a multi-year push to grow oil and gas production capacity, near-term OPEC+ cuts notwithstanding," Bank of America has said regarding the encouraging numbers put up by these OFS companies.
By Alex Kimani for Oilprice.com
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