Will Crude Price Rally Hurt Andeavor's (ANDV) Q1 Earnings?

Andeavor ANDV is set to release first-quarter 2018 results, after the closing bell on May 7.

San Antonio, TX-based Andeavor is a refining and marketing company of petroleum products.

In the last reported quarter, the company missed the Zacks Consensus Estimate of $1.13 for earnings per share by 67.3%. For the trailing four quarters, the company has a negative earnings surprise of 1.2% as it missed estimates twice. Tepid performance by the Refining segment and increased expenses led to the weaker-than-expected results. For the first quarter, the company is expected to report earnings of 58 cents.

Let’s see how things are shaping up for this announcement.

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Which Way Are Estimates Trending?

The Zacks Consensus Estimate for first-quarter earnings has seen one upward and seven downward revisions in the last 30 days. As a result, Andeavor has seen the Zacks Consensus Estimate for first-quarter earnings being revised 31% downward over the last month. Nevertheless, the expected earnings reflect year-over-year growth of about 11.5%.

Further, analysts polled by Zacks expect revenues of $10.87 billion, reflecting an improvement of 63.7% from the year-ago quarter.

Factors at Play

For first-quarter 2018, the company’s refining segment is likely to impact its bottom line adversely. The recent oil price rally has not only made commodity expensive for refiners but also widened the crack spread and lowered refining margins. In the last reported quarter, the segment posted operating loss of $56 million. While total throughput levels increased, lower margins coupled with higher cost of materials and manufacturing led to the weak results.

Per the company’s first-quarter 2018 guidance, throughput volumes in California are expected in the range of 430-455 thousand barrels per day (MBbl/d), lower than the year-ago quarter’s 500 MBbl/d.  . Earnings are likely to be affected by weakness in volumes processed.

At the beginning of the first quarter, Andeavor agreed to acquire Rangeland Energy, which has operations in the Delaware and Midland Basins. The acquisition also added crude pipelines, storage terminals, loading facilities in Andeavor’s asset base. Moreover, in February, the company agreed to acquire the West Coast asphalt terminals of the downstream energy company Delek US Holdings, Inc. DK for $75 million along with working capital. These acquisitions are expected to have driven the company’s profits,.

What Does Our Model Unveil?

Our proven model does not conclusively show a beat for Andeavor this earnings season. This is because a stock needs to have both a positive Earnings ESPand a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: Earnings ESP represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate. Andeavor has an ESP of -1.26%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Andeavor carries a Zacks Rank #3. Though a Zacks Rank of #3 increases the predictive power of ESP, a negative ESP makes surprise prediction difficult.

Meanwhile, we caution against Sell-rated stocks (Zacks Ranks #4 and 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Energy Stocks With Favorable Combination

Here are some companies from the energy space which, according to our model, have the right combination of elements to post an earnings beat this quarter.

Abraxas Petroleum Corporation AXAS has a Zacks Rank #3 and an Earnings ESP of +13.46%. The company will report earnings on May 8.

Contango Oil & Gas Company MCF has a Zacks Rank #3 and an Earnings ESP of +32.83%. The company is slated to report earnings on May 8.

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