Crude oil prices are a major influence on the global economy, and they directly affect energy markets and investor expectations. About 49% of the companies in the S&P 500 index have released their fourth-quarter earnings, with 46.2% of oil and energy companies reporting so far. With falling oil prices, investors are likely concerned about what this means for the overall earnings outlook, which looks less favorable for the fourth quarter.
Here’s a look at the three key areas driving performance in the fourth quarter of 2024 and how these trends might have impacted some notable energy stocks.
Q4 Oil Price
Oil prices in fourth-quarter 2024 saw a notable decline, with West Texas Intermediate crude averaging $70.69 per barrel, down from the prior year's figure of $78.41. The price drop was due to a combination of rising global production and softer demand growth. While OPEC+ maintained production cuts for most of the year, an increase in output from the United States and other non-OPEC countries led to higher supply levels. Additionally, concerns over slower economic growth, particularly in developed markets, weighed on demand. Regarding natural gas prices, the Henry Hub spot price averaged $2.44 per million British thermal units (MMBtu) in fourth-quarter 2024, down from the prior year's $2.74 per MMBtu.
Impact of Declining Oil and Natural Gas Prices on YoY Growth
Considering the sharp decline in oil and gas prices, the outlook for the fourth-quarter earnings season appears challenging. According to the latest Zacks Earnings Trends report, energy companies under the S&P 500 index are on track for a significant earnings decline compared to the year-ago quarter earlier when they benefited from higher commodity prices. The sector’s earnings are expected to decline 25.6% from the fourth quarter of 2023, with revenues increasing 2.1%.
Energy investors face considerable headwinds. In contrast to the year-ago quarter’s strong earnings growth, fueled by rising oil and natural gas prices, the sector now struggles with declining commodity prices. As we discussed, approximately 46.2% of S&P 500 energy companies have reported so far, with earnings down 35% year over year. Revenue growth remains weak, with only a modest 1% increase, highlighting the challenging macroeconomic environment.
With the unfavorable pricing backdrop, the bottom-line beat ratios so far indicate that many energy companies are facing downward pressure on their profitability. Only 66.7% of energy firms have managed to surpass EPS estimates in the fourth quarter. Furthermore, revenue beats stand at 66.7%, signaling that top-line growth remains constrained despite stable production levels. While earnings are expected to decline, companies may still beat revenue estimates, driven by strong revenues and efficiencies.
Drilling Business
Drilling companies face mixed conditions in the fourth quarter. Strong demand in high-production regions may keep business steady, but lower oil prices could lead to cautious spending. Companies focusing on cost-efficient technologies and high-demand areas may still secure contracts.
While drilling companies face mixed conditions, other segments of the energy sector are showing signs of resilience. Let’s dive into the storage and transportation business, where demand remains strong despite oil price fluctuations.
Storage and Transportation Business
Demand for storage and transportation services remains strong, especially for LNG. Companies near key export hubs and those focused on LNG transportation should see continued business, benefiting from global export growth despite volatile oil prices.
Exploration and Production (E&P) Business
E&P companies are directly affected by falling oil prices. However, those with diversified portfolios, including natural gas, are better positioned. Cost-efficient operations and strong hedging strategies can help mitigate the impact of lower oil prices.
Factors to Influence Q4 Earnings
The earnings season may face challenges due to a significant drop in commodity prices from the previous quarter. According to the Zacks Earnings Trends report, the energy sector is expected to earn $25.6 billion in the December 2024 quarter, indicating a 31.2% decline from the last quarter and a 25.6% decrease from the year-ago period.
Experts think that fourth-quarter earnings reports could be disappointing, as falling commodity prices are likely to hurt the energy sector's profits.
Energy Companies’ Earnings in Focus
Given the backdrop, let us look at how the following energy companies are placed ahead of their fourth-quarter earnings releases slated for Feb. 12.
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.
Antero Resources Corporation AR is scheduled to report quarterly earnings after the closing bell. The chances of the company delivering an earnings beat this time around are high as it currently has an Earnings ESP of +0.41% and a Zacks Rank #2. 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 Denver, CO-based oil and gas exploration and production company’s earnings is pegged at 31 cents per share, suggesting a 40.91% increase from the prior-year reported figure.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
AR is an independent oil and natural gas company focused on the exploration, production, and acquisition of resources in the Appalachian Basin, with significant assets in natural gas, oil and NGL properties, and a vast pipeline network for gas gathering and compression. AR’s diversified portfolio across natural gas and oil assets, coupled with its strong hedging strategy, puts it in a solid position to beat earnings expectations despite lower oil prices. AR beat the Zacks Consensus Estimate twice in the last four quarters and missed in the other two, resulting in an average earnings negative surprise of 60.94%. This is depicted in the chart below:
Antero Resources Corporation Price and EPS Surprise
Antero Resources Corporation price-eps-surprise | Antero Resources Corporation Quote
Nabors Industries Ltd. NBR is set to report quarterly earnings after the closing bell. The chances of Nabors delivering an earnings beat this time around are low as it has an Earnings ESP of +53.97% and a Zacks Rank #4 (Sell) at present.
The Zacks Consensus Estimate for Hamilton, HM-based oil and gas drilling company’s loss is pegged at $1.86 per share, suggesting a 51.56% decline from the prior-year reported figure.
NBR provides drilling and drilling-related services for both land-based and offshore oil and gas wells, operating globally. The company offers advanced drilling systems, and pressure drilling services, and operates a fleet of land-based drilling rigs and offshore platforms, along with manufacturing and servicing drilling equipment. Regarding earnings surprises, NBR missed the Zacks Consensus Estimate in each of the last four quarters, delivering an average earnings surprise of 128.93%. This is depicted in the chart below:
Nabors Industries Ltd. Price and EPS Surprise
Nabors Industries Ltd. price-eps-surprise | Nabors Industries Ltd. Quote
Williams Companies, Inc. WMB is set to report quarterly earnings before the opening bell. The chances of Williams delivering an earnings beat this time around are low as it has an Earnings ESP of -2.53% and a Zacks Rank #3.
The Zacks Consensus Estimate for Tulsa, OK-based oil and gas storage and transportation company’s earnings is pegged at 45 cents per share, suggesting a 6.25% decline from the prior-year reported figure.
WMB operates as an energy infrastructure company with a focus on natural gas transportation and storage. It owns and operates extensive pipelines and facilities, providing midstream services across key U.S. shale regions, along with natural gas and NGL marketing, trading and transportation services. WMB’s earnings beat the consensus estimate in each of the trailing four quarters, delivering an average surprise of 8.80%. This is depicted in the graph below:
Williams Companies, Inc. (The) Price and EPS Surprise
Williams Companies, Inc. (The) price-eps-surprise | Williams Companies, Inc. (The) Quote
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