RDS Stock Down 3% after Shell Reports Drastic Drop in Q2 2020 Earnings Due to COVID-19 Pandemic

UTC by Steve Muchoki · 3 min read
RDS Stock Down 3% after Shell Reports Drastic Drop in Q2 2020 Earnings Due to COVID-19 Pandemic
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On Thursday, July 30, 2020, Royal Dutch Shell released its Q2 earnings results. The company reported a sharp decline in its revenue due to civic-19 related demand decline. The company reported a sharp decline in its revenue due to the coronavirus-related demand decline.

Giant multinational oil and gas company Royal Dutch Shell Plc (NYSE: RDS.A) published a detailed Q2 2020 earnings report. As anticipated, the company reported a sharp decline in its sales and in turn the revenue for the said time in comparison to the same period last year.

After the Q2 report was revealed, Shell stock wend down in the pre-market. At the time of writing, the stock is down 2.78% and is trading at $31.51. Yesterday, however, RDS.A stock closed with a 0.97% rise. Just to compare: 12 months ago teh stock price was around $63.80.

Details of the Shell Q2 Earnings Report

The company reported adjusted earnings of $638 million in the three months that ended on July 30. For the three months, the company saw its sales decline by 39%, the largest it has ever reported. According to the company, the sharp decline is a result of the coronavirus pandemic that has put most industries depending on oil and gas at a halt.

“Shell has delivered resilient cash flow in a remarkably challenging environment. We continue to focus on safe and reliable operations and our decisive cash preservation measures will underpin the strengthening of our balance sheet. Our high-quality integrated portfolio, disciplined execution and forward-looking strategy enable sustained competitive free cash flow generation,” said Royal Dutch Shell Chief Executive Officer, Ben van Beurden.

In a bid to control its cost reduction, the company reduced its underlying operational expenditure by $1.1 billion in the second quarter in comparison to the first quarter. It assured its investors that the company is in course to meet its reduction targets of $3 -$4 billion.

On the other hand, it’s cash capital expenditure reduced by $1.4 billion compared with Q1 2020. Its Net debt increased in Q2 by $3.4 billion to $77.8 billion.

Due to the unprecedented nature of the ongoing coronavirus pandemic, the company had previously reported to write off up to $22 billion worth of assets in the second quarter.

“Additional well write-offs and deferred tax charges had a negative impact of $0.6 billion on Adjusted earnings, but no cash impact,” Shell stated in the Q2 report.

Future Prospects of the Company

The company anticipates the impact of low oil prices to become more significant in the third quarter. Oil prices have fluctuated heavily year to date, as disagreements in the OPEC and non-OPEC members in the oil production cut.

It is during the beginning of the pandemic that the crude oil price dropped to a record lowest. With most economies still shut down by the coronavirus pandemic, analysts predict a similar if not worse situation as observed in the second quarter.

However, with the COVID-19 vaccines program on track, and measures put in place to reopen different places, the company anticipates seeing a possible rise in its sales.

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Steve Muchoki

A financial analyst who sees positive income in both directions of the market (bulls & bears). Bitcoin is my crypto safe haven, free from government conspiracies. Mythology is my mystery! "You cannot enslave a mind that knows itself. That values itself. That understands itself."

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