Half of the energy companies in the S&P 500 have reported earnings, and the sector is facing tough conditions as the fourth-quarter earnings season continues. The sharp decline in oil and natural gas prices has put significant pressure on the profitability of many energy companies. Although some companies have managed to maintain stable production, the drop in commodity prices is eroding their profit margins. As the global energy landscape shifts, the performance of key energy companies becomes a critical point of focus.
Q4 Oil Price
In the fourth quarter of 2024, oil prices dropped significantly, with West Texas Intermediate crude averaging $70.69 per barrel, representing a decrease from the prior year's figure of $78.41. This drop was caused by a combination of rising global production and slower demand growth. Although OPEC+ kept production cuts in place for most of the year, an increase in output from the United States and other non-OPEC nations led to higher supply levels. Concerns over slower economic growth, especially in developed markets, also weighed on demand. Meanwhile, natural gas prices fell as well, with the Henry Hub spot price averaging $2.44 per million British thermal units (“MMBtu”), down from $2.74 per MMBtu in the prior-year quarter.
Impact of Declining Oil and Natural Gas Prices on YoY Growth
The energy sector is experiencing significant pressure heading into the fourth-quarter earnings season, with declining oil and gas prices significantly impacting profitability. According to the latest Zacks Earnings Trends report, S&P 500 energy companies are expected to report a 24.8% drop in earnings compared to the year-ago quarter in 2023.
So far, half of the energy companies in the S&P 500 have reported earnings, and their profits have dropped 33% year over year. Revenue growth has been weak, rising just 0.8%. Even though production levels have stayed steady, lower oil prices have hurt profit margins. As a result, only 69.2% of energy companies have beaten earnings estimates, and the same percentage has exceeded revenue expectations — both of which are lower.
The energy sector is a major drag on overall market earnings. If we exclude energy companies, S&P 500 earnings would rise 16%. This highlights just how much falling oil and gas prices are weighing down the sector.
The macroeconomic backdrop remains unfavorable for energy investors, with commodity price weakness, lower profit margins and increasing competition for capital allocation within the broader market. Given these headwinds, the sector’s earnings outlook also remains cautious heading into 2025.
The Struggles Across Energy Sub-Sectors
Different parts of the energy sector are feeling the pressure. Exploration and production companies are expected to see reduced profits despite steady production levels, as the supply-demand imbalance continues to impact their margins. Integrated oil and gas companies, while more diversified, will likely feel pressure, particularly in their upstream divisions. Equipment and services companies are also expected to see weaker demand, as reduced exploration and production activity slows down the need for their services. Overall, the sector is poised for weaker earnings in the fourth quarter.
Energy Companies’ Earnings in Focus
Given the backdrop, let us examine how the following energy companies are placed ahead of their fourth-quarter earnings releases slated for Feb. 19 and how they are positioned to weather this storm.
Our proprietary model indicates that a company needs to have the right combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — to increase the odds of an earnings beat.
Oceaneering International, Inc. OII is scheduled to report quarterly earnings after the closing bell. OII, a provider of oil and gas equipment and services, is expected to post impressive earnings despite the sector’s challenges. The chances of the company delivering an earnings beat this time around are high as it currently has an Earnings ESP of +10.11% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
The Zacks Consensus Estimate for Houston, TX-based oil and gas equipment and services company’s earnings is pegged at 45 cents per share, suggesting a 136.84% increase from the prior-year reported figure.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Regarding earnings surprises, OII’s earnings missed the Zacks Consensus Estimate in each of the last four quarters, delivering an average negative surprise of 28.31%. This is depicted in the chart below:
Oceaneering International, Inc. Price and EPS Surprise
Oceaneering International, Inc. price-eps-surprise | Oceaneering International, Inc. Quote
ProPetro Holding Corp. PUMP is set to report quarterly earnings before the opening bell. Unfortunately, the prospects for PUMP aren’t looking too bright. The chances of PUMP delivering an earnings beat this time around are low as it has an Earnings ESP of 0.00% and a Zacks Rank #5 (Strong Sell).
The Zacks Consensus Estimate for the Midland, TX-based oil and gas equipment and services company’s loss is pegged at 1 cent per share, suggesting a 93.75% increase from the prior-year reported figure. PUMP’s earnings beat the Zacks Consensus Estimate twice in the last four quarters and missed in the other two, resulting in an average negative surprise of 3.13%. This is depicted in the chart below:
ProPetro Holding Corp. Price and EPS Surprise
ProPetro Holding Corp. price-eps-surprise | ProPetro Holding Corp. Quote
Eni S.p.A. E is scheduled to report quarterly earnings after the closing bell. The chances of E delivering an earnings beat this time around are low as it has an Earnings ESP of 0.00% and a Zacks Rank #3.
The Zacks Consensus Estimate for Rome, Italy-based Integrated oil and gas company’s earnings is pegged at 87 cents per share, suggesting a 17.92% decrease from the prior-year reported figure. E’s earnings missed the Zacks Consensus Estimate in each of the last four quarters, delivering an average negative surprise of 10.93%. This is depicted in the chart below:
Eni SpA Price and EPS Surprise
Eni SpA price-eps-surprise | Eni SpA Quote
Northern Oil and Gas, Inc. NOG is scheduled to report quarterly earnings after the closing bell. The chances of NOG delivering an earnings beat this time around are low as it has an Earnings ESP of -0.59% and a Zacks Rank #3.
The Zacks Consensus Estimate for Minnetonka, MN-based oil and gas exploration and production company’s earnings is pegged at $1.13 per share, suggesting a 29.81% decrease from the prior-year reported figure. NOG beat the Zacks Consensus Estimate thrice in the last four quarters and missed the other one, resulting in an average earnings surprise of 12.96%. This is depicted in the chart below:
Northern Oil and Gas, Inc. Price and EPS Surprise
Northern Oil and Gas, Inc. price-eps-surprise | Northern Oil and Gas, Inc. Quote
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
