The stock of Brazil's state-run energy giant Petroleo Brasileiro S.A., or Petrobras (PBR Quick QuotePBR - Free Report) , has lost around 4.8% since its fourth-quarter results were announced on Feb 23. The negative response could be attributed to the company’s inability to beat the bottom-line estimate despite help from surging commodity prices.

What Did Petrobras’ Earnings Unveil?

Petrobras announced fourth-quarter earnings per ADS of 65 cents, missing the Zacks Consensus Estimate of 84 cents and deteriorating from the year-ago profit of 82 cents. The underperformance can be attributed to the non-repetition of the recognition of reversal in impairments (to reflect the improvement in Brent crude prices) that boosted previous year’s numbers.

Recurring net income, which strips one-time items, came in at $4,266 million compared to $5,385 million a year earlier.

But Petrobras’ adjusted EBITDA rose to $11,276 million from $8,811 million a year ago due to higher oil prices and strong downstream results, which more than offset the rising pre-salt lifting costs.

The company, which announced R$2.86 of dividend per share to be distributed in May, reported  revenues of $24,031 million that came in slightly above the Zacks Consensus Estimate of $23,993 million and jumped 72.7% from the year-earlier sales of $13,911 million.
 

Coming back to earnings, let's take a deeper look at the recent performances of PBR’s two main segments: Upstream (Exploration & Production) and Downstream (or Refining, Transportation and Marketing).

Upstream: The Rio de Janeiro-headquartered company’s average oil and gas production during the fourth quarter reached 2,704 thousand barrels of oil equivalent per day (MBOE/d) — 80% liquids — up slightly from 2,682 MBOE/d in the same period of 2020.

Compared with the year-ago period, Brazilian oil and natural gas production — constituting more than 98% of the overall output — edged up 1% to 2,663 MBOE/d. The upside was due to the ramp-up of the Carioca platform.

But for the 12 months ended Dec 31, 2021, the average production fell 2.2% from the 2020 levels to 2,774 MBOE/d.

In the October to December period, the average sales price of oil in Brazil surged 79.2% from the year-earlier period to $77.56 per barrel. The sharp increase in crude prices had a positive effect on upstream unit sales and earnings.

Overall, the segment’s revenues improved to $15,781 million in the quarter under review from $8,995 million in the year-ago period. Further, dDespite an uptick in pre-salt lifting costs (which rose 17.7% from the fourth quarter of 2020 to $5.26 per barrel), the upstream unit recorded a net income of $6,506 million, up from the year-ago profit of $6,385 million.

Downstream (or Refining, Transportation and Marketing):.Revenues from the segment totaled $21,044 million, up 74.1% from the year-ago figure of $12,086 million on higher sales. Petrobras' downstream unit came up with a profit of $1,774 million, which compared favorably with earnings of $976 million in the fourth quarter of 2020. The surge was on account of strong domestic fuel margins and a positive inventory turnover effect.

Costs

During the period, Petrobras’ sales, general and administrative expenses were $1,398 million, 15.8% higher than the year-ago period though selling expenses fell from $1,128 million a year ago to $1,092 million. However, the absence of last year’s massive reverse impairment of $6,019 million meant that total operating expenses rose by $5,690 million from the corresponding quarter last year. This meant that the company reported an operating income of $10,322 million in the fourth quarter of 2021 compared with $12,960 million a year ago.

Financial Position

During the three months ended Dec 31, 2021, Petrobras’ capital investments and expenditures totaled $2,631 million compared with $2,049 million in the prior-year quarter. In 2021, the company spent $8,772 million.

Importantly, the company generated positive free cash flow for the 27th consecutive quarter, with the metric marginally rising to $7,511 million from $5,684 million recorded in last year’s corresponding period. For full-year 2021, free cash flow was up 36.7% to $31,466 million.

At the end of 2021, Petrobras had net debt of $47,626 million, less than $63,168 million a year ago and $48,132 million as of Sep 30, 2021. The company ended the year with cash and cash equivalents of $10,480 million.

Meanwhile, Petrobras’ net debt to trailing 12 months adjusted EBITDA ratio improved to 1.09 from 2.22 in the previous year. Moreover, it was better than 1.17 at the end of the third quarter.

Zacks Rank & Stock Pick

Petrobras currently carries a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space are Centennial Resource Development , ConocoPhillips (COP Quick QuoteCOP - Free Report) and Marathon Oil (MRO Quick QuoteMRO - Free Report) . Each of the companies sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Centennial Resource Development: Centennial Resource Development is valued at some $2.5 billion. The Zacks Consensus Estimate for CDEV’s 2022 earnings has been revised 6.3% upward over the past 30 days.

Centennial Resource Development, headquartered in Denver, CO, delivered a 30% beat in Q4. CDEV shares have gained around 49% in a year.

ConocoPhillips: ConocoPhillips is valued at around $131.6 billion. The consensus estimate for COP’s 2022 earnings has been revised 17.1% upward over the past 60 days.

COP beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 12.6%. ConocoPhillips has rallied around 65.6% in a year.

Marathon Oil: Marathon Oil has a projected earnings growth rate of 83.4% for this year. The Zacks Consensus Estimate for MRO’s 2022 earnings has been revised 9.5% upward over the past 30 days.

Marathon Oil beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 37.4%. MRO shares have gained around 89.8% in a year.