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Why Is Hess (HES) Down 5.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Hess (HES). Shares have lost about 5.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Hess due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Hess Beats on Q3 Earnings Estimate

Hess has reported third-quarter 2023 earnings per share of $1.64, beating the Zacks Consensus Estimate of $1.24. However, the bottom line declined from the year-ago quarter’s $1.89 per share.

Total quarterly revenues dipped to $2,837 million from $3,157 million a year ago but beat the Zacks Consensus Estimate of $2,582 million.

Better-than-expected quarterly results have been driven by higher oil equivalent production volumes. The positives were partially offset by lower realizations of commodity prices.

Operational Update

Exploration and Production:

For the quarter under review, the Exploration and Production business has reported adjusted earnings of $529 million, declining from $626 million a year ago. The business was negatively impacted by a dip in realized commodity prices.

Quarterly hydrocarbon production was 395 thousand barrels of oil equivalent per day (MBoe/d), up from 368 MBoe/d in the year-ago period primarily due to higher production in Guyana and the Bakken. The reported figure also beat our estimate of 385 MBoe/d.

Crude oil production increased from 217 thousand barrels per day (MBbls/d) in third-quarter 2022 to 221 MBbls/d in the quarter under review and beat our estimate of 217.9 MBbls/d.

Natural gas liquid production totaled 71 MBbls/d, up from 60 MBbls/d in the prior-year quarter. The reported figure is slightly below our estimate of 75.4 MBbls/d.

Natural gas production was 615 thousand cubic feet per day (Mcf/d), up from 547 Mcf/d a year ago. The reported figure is above our estimate of 550 Mcf/d.

Worldwide crude oil realization per barrel of $84.07 (excluding the impacts of hedging) significantly declined from $93.95 in the year-ago period. Also, worldwide natural gas prices fell to $4.57 per Mcf from the year-ago figure of $5.85. The average worldwide natural gas liquids’ selling price declined to $20.17 per barrel from $35.44 a year ago.

Midstream:

From the midstream business, the company generated adjusted net earnings of $66 million, down from $68 million a year ago.

Operating Expenses

Operating expenses for the third quarter totaled $467 million versus the year-ago level of $398 million. The reported figure is above our estimate of $373 million.

Exploration expenses increased to $65 million from $58 million in the year-ago period. However, marketing costs declined to $696 million from $982 million a year ago.

Total costs and expenses declined to $2,020 million for the quarter from $2,269 million a year ago.

Financials

Net cash provided by operating activities was $986 million for the third quarter. Hess’ capital expenditure for exploration and production activities totaled $998 million.

As of Sept 30, 2023, the company had $2,018 million in cash and cash equivalents. Its long-term debt was $8,241 million at the third-quarter end.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Hess has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Hess has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.

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