Shares of Chesapeake Energy Corp. tumbled in active trade Wednesday, after the company beat earnings expectations but came up short on revenue, as oil and gas sales fell well below Wall Street forecasts.
Chesapeake CHK, +1.13%swung to a net loss of $40 million, or 4 cents a share, in the quarter to June 30, from a profit of $470 million, or 47 cents a share, in the same period a year ago.
Excluding non-recurring items, such as a $168 million loss on oil, natural gas and natural gas liquid (NGL) derivatives, adjusted earnings per share came to 15 cents, above the average analyst estimate of 14 cents, according to FactSet. Total revenue fell to $2.255 billion from $2.281 billion, just below the FactSet consensus of $2.269 billion.
Oil, natural gas and NGL revenue dropped 23% to $982 million, missing the FactSet consensus of $1.16 billion, while the 27% jump in marketing revenue to $1.27 billion was well above expectations of $1.09 billion.
Analyst Neal Dingmann at SunTrust Robinson Humphrey pointed out that adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) also disappointed, rising 16% to $536 million but missing the FactSet consensus of $562.9 million, given lower-than-expected volume.
EBITDA is a measure of performance often used in calculating debt leverage, and reducing leverage has been a key part of Chesapeake’s turnaround strategy, with the “ultimate goal” to reduce debt to two-times EBITDA. The net debt-to-EBITDA ratio was 5.39 times at the end of 2017, according to FactSet.
The stock had plunged as much as 10% intraday before paring losses to be down 5.9% in afternoon trade. Volume spiked to 49.5 million shares, already more than the full-day average of about 33.8 million shares, according to FactSet.
Chesapeake has made a habit of disappointing investors with its quarterly reports. The stock has declined on the day earnings were reported for the past two quarters, and for six of the past seven quarters, by an average of 4.9%. The one time it gained during that stretch, the stock rocketed 22% on Feb. 18 after fourth-quarter 2017 results were released.
What may have also added to investors’ disappointment is how well the stock had done since the last earnings report. The shares rocketed 61% from May 2 through Tuesday, while the SPDR Energy Select Sector exchange-traded fund XLE, -0.52%gained 4.7%, continuous crude oil futures CLU8, -0.41%tacked on 1.2% and the S&P 500 SPX, +0.46% advanced 6.9%.
Last week, Chesapeake said it would sell its oil and gas holdings in Ohio’s Utica Shale for $2 billion, and will use the proceeds to further pay down debt. That prompted Moody’s Investors Service to place Chesapeake’s corporate family rating of B3, which is deep into “junk” territory, under review for a possible upgrade, and a number of Wall Street analysts to raise their stock price targets.
Chief Financial Officer Domenic Dell’Osso said on the post-earnings conference with analysts, according to a transcript provided by FactSet, that the company will likely access the high-yield market to refinance its debt in the second-half of the year, “provided market conditions remain attractive to do so.”
On Wednesday, SunTrust’s Dingmann kept his rating on Chesapeake at buy and his stock price target at $6, which was about 35% above current levels. “We believe finances could improve soon if the upcoming borrowing base redetermination/senior notes refinance are successful,” Dingmann wrote in a note to clients.
“Just in closing, I would like to further highlight the confidence we have and our continued progression,” said Chief Executive Robert Lawler to conclude the post-earnings conference call.
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