Brazil's Petrobras 1Q Profit Seen Dropping On Imports
First Published Thursday, 10th May 2012 06:01 pm - © 2012 Dow Jones
--Petrobras is expected to report a 25% decline in first-quarter net profits
--Fuel imports to have lesser impact on bottom line than previous quarter
--Brazilian currency's late first-quarter slide unlikely to have big impact on results
By Jeff Fick
Of Dow Jones NEWSWIRES
RIO DE JANEIRO -(Dow Jones)- Brazilian state-run energy giant Petroleo Brasileiro (PBR, PETR4.BR), or Petrobras, should report a sharp decline in first-quarter profits as costly fuel imports continue to hurt the company's bottom line.
Petrobras is expected to post a net profit of 8.3 billion Brazilian reais ($4.25 billion) in the first quarter, down 25% from the same period of 2011, according to the median estimate of eight analysts polled by Dow Jones Newswires. Earnings before interest, taxes, depreciation and amortization, or Ebitda, were pegged at BRL14.8 billion on revenues of BRL65.19 billion.
The firm has seen its earnings eroded in recent quarters because the country doesn't have enough refining capacity, and it has to import expensive gasoline and diesel fuel to meet booming domestic demand. Moreover, it has been selling those fuels at a loss because of the long-term pricing policy, which seeks to iron out fluctuations in international oil prices. The company argues that leads to losses when international prices are high, but profits when international prices fall.
There will be some relief from prices hikes implemented Nov. 1, although analysts say the hike wasn't enough to match international prices, which were 13% higher in the first quarter than a year ago.
Also, consumption typically falls during the first quarter, the Southern Hemisphere's summer season, as Brazilians enjoy vacations and the Carnival holiday.
Nonetheless, Petrobras shares are down sharply versus the firm's other major rivals, such as Chevron Corp. (CVX) or Exxon Mobil Corp. (XOM), in part because of the pricing policy. On Thursday, the firm's preferred shares traded in Sao Paulo were up 0.6% at BRL20.27, but they are down about 7% from the beginning of the year.
Petrobras could also see some impact from the Brazilian real's late first-quarter slide, although the currency still ended the first quarter stronger from the fourth quarter of 2011. A weaker currency raises the firm's financial costs.
"[The real's weakness] could have a negative impact on the financial side," said Erick Scott, an analyst at Sao Paulo's SLW brokerage. "But I don't know if the impact will be as big as the third quarter of 2011." Petrobras registered stiff foreign-exchange losses in the third quarter of 2011, when the real lost nearly 20% against the dollar.
Also troubling analysts in recent months has been a steady downward trend for Petrobras's domestic oil production, which was up a scant 1% year-on-year in the first quarter. In March, Petrobras's crude-oil output dropped more than 5% as the company was hit by the shutdown of the Frade field operated by U.S. oil major Chevron Corp. (CVX) and maintenance work at several key offshore platforms. Petrobras holds a 30% stake in Frade, which was producing nearly 70,000 barrels a day before a drilling accident caused an oil spill at the field last November.
Credit Suisse analyst Emerson Leite said in a research note earlier this week that Petrobras's first-quarter earnings report was "important" for the company after a weak fourth quarter. The first-quarter results "will provide a better frame of reference for the market to assess the company's underlying earnings power," Leite said.
Petrobras reports its first-quarter earnings Friday after markets close.
-By Jeff Fick, Dow Jones Newswires; 55-21-2586-6085; firstname.lastname@example.org