Why Total Earnings Aren't Climbing With Oil Prices

Total (NYSE: TOT  ) will release its quarterly report tomorrow, and investors have gotten a bit more upbeat about the prospects for the French oil company's stock. Yet from an income perspective, Total earnings aren't poised to deliver the growth that you'd expect in light of relatively strong price action in the oil market in recent months.

One thing that U.S. investors often forget is that the world energy markets are much different from what we've seen domestically in recent years. While the U.S. is awash in oil and natural gas, prices for crude oil and refined products remain relatively high overseas. Moreover, with the European economic crisis, Total has had to face a harsh investing environment. Let's take an early look at what's been happening with Total over the past quarter and what we're likely to see in its quarterly report.

Stats on Total

Analyst EPS Estimate

$1.57

Change From Year-Ago EPS

(3.1%)

Revenue Estimate

$58.48 billion

Change From Year-Ago Revenue

(7.2%)

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

How will Total earnings fare this quarter?
Analysts have been downbeat about Total's earnings prospects in recent months, cutting their June-quarter estimates by $0.13 per share and marking down their full-year 2013 consensus by 7%. Yet the stock has performed quite well, rebounding 15% since late April.

Few American investors know much about Total, but the company ranks among the largest oil companies in the world. Unfortunately for investors, its headquarters in the middle of Europe left its stock exposed to the full wrath of the European financial crisis, and that's a big part of why the company's stock has languished even as oil majors in the U.S. and elsewhere in the world have gained a lot more ground.

Yet Total has been positioning itself to take advantage of some of the most promising prospects in energy production around the world. In Africa, Total holds a substantial stake in lucrative blocks off the shore of Angola, and it also has added a presence off the coast of Nigeria, for which it recently spent $1.2 billion to buy subsea equipment from FMC Technologies (NYSE: FTI  ) to support its new operations in the Egina offshore field.

At the same time, though, Total has been smart about not wasting its financial resources. It sold off its minority stake in one major venture in the Canadian oil sands to partner Suncor Energy (NYSE: SU  ) in May, taking a $1.65 billion charge but saving $5 billion in prospective costs. Suncor also abandoned the Voyageur project, validating Total's decision.

Total has even made forward-looking investments outside the oil and gas industry. With its majority stake in solar giant SunPower (NASDAQ: SPWR  ) , Total continues to seek to establish a solid presence in renewable energy to prepare for the possibility of long-term declines in fossil fuel use. Given increased concerns about rising carbon-dioxide levels, a rise in regulation could make Total's investment in SunPower seem prescient.

In the Total earnings report, watch to see what the company has to say about the recent collapse of spreads between Brent crude prices and those of West Texas Intermediate crude. With the disincentive to import oil to the U.S. beginning to fade, Total might be able to boost its exports and start pushing its earnings higher. In the long run, though, Total needs to keep production growing in order to prosper.

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  • Report this Comment On July 26, 2013, at 2:03 AM, MiserblOF wrote:

    4% dividend is a nice incentive, though I wouldn't be buying at the current prices. Price has been pretty flat over the past few years with dips into the low 40's and crests in the low to mid 50's. Several times I thought it was going to jump to around 60 but the rallies fizzled.

    If the word on the last quarter is good, the market will likely react well and we could see $60 TOT in the coming months. If not, we've been in the low 40's before and that pushes the dividend in the 5% neighborhood, not a bad place to think about jumping on board.

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