Energy Earnings: Mixed Results Lead to Mixed ETF Returns

Cheniere Energy and Devon Energy reported in early August. For the latest quarter, Cheniere missed estimates on both the top and bottom lines. It had adjusted earnings of $1.60 per share on $3.25 billion in revenue. That compares to expectations of $1.74 per share on $3.55 billion in revenue.

Adjusted EBITDA plunged more than 50% to $1.8 billion due to moderating gas prices, and the increased share of liquid natural gas has sales under long-term contracts, which resulted in lower margins per MMBtu of liquid natural gas.

Despite the weak results, Cheniere Energy looks poised for a major rebound on the back of booming natural gas demand. China is seeking alternative sources to coal, and natural gas is taking share. As a major exporter of natural gas, Cheniere Energy looks like a potential winner.

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Among the energy ETFs with the largest weightings to Cheniere Energy are the Roundhill Alerian LNG ETF (LNGG ), the Range Global LNG Ecosystem ETF (LNGZ C), and the VanEck Energy Income ETF (EINC B-).

For the June quarter, Devon Energy posted adjusted earnings of $1.41 per share on $3.9 billion in revenue, versus expectations of $1.27 per share on $3.9 billion in revenue. Notably, the company reported record oil production of 335,000 barrels per day on the back of increased productivity in the Delaware Basin. That region accounted for 66% of the total volume during the second quarter.

Additionally, Devon Energy boosted its full-year outlook for production from the previous range of 655,000 to 675,000 barrels of oil equivalent per day to between 677,000 and 688,000 boepd. The company expects to increase production without increasing its previous guidance for capital expenditures of $3.3 billion to $3.6 billion.

Among the ETFs that hold Devon Energy in their top 15 holdings are the Invesco Energy Exploration & Production ETF (PXE B), the iShares U.S. Oil & Gas Exploration & Production ETF (IEO B+), and the Invesco S&P 500 Equal Weight Energy ETF (RSPG B).

On the clean energy side, Daqo New Energy was the most recent to report, with its results coming in on Aug. 26. Unfortunately, the company has quite a track record of misses. Revenue came up short in each of the last four quarters, and adjusted earnings missed the mark as well.

In the latest quarter, Daqo’s revenue tumbled from $415.3 million in the first quarter to $219.9 million in the second. The company posted a gross loss of $159.2 million, versus a gross profit of $72.1 million in the previous quarter. Daqo’s gross margin was -72.4% in the second quarter, down from +17.4% in the first. Adjusted losses came in at $1.50 per American depository share (ADS), versus adjusted earnings per basic ADS of 55 cents per share in the previous quarter.

Of course, the solar industry has faced significant challenges amid the high interest rates. According to Daqo management, market prices across the solar value chain tumbled to below production costs for almost the entire industry.

As a result, the average selling price of the company’s polysilicon also fell below its production cost, requiring $108 million impairment expense because the market value of the inventory fell below book value. Immediately following the earnings release on Aug. 26, Daqo shares tumbled 8% as of early-morning trades in New York.

The only ETF with Daqo New Energy in its top 15 holdings is the ProShares S&P Kensho Cleantech ETF (CTEX B-). Despite the earnings disappointments, CTEX rose 6% in early-morning trades on Aug. 26 following Daqo’s earnings release.

Constellation Energy missed estimates slightly for the June quarter, posting adjusted earnings of $1.68 per share on $5.5 billion in revenue, versus expectations of $1.69 per share on $5.55 billion in revenue.

Although those numbers missed the consensus slightly, the company boosted its full-year guidance for profits. The new range is $7.60 to $8.40 per share, versus previous expectations of $7.23 to $8.03 per share. The consensus for 2024 suggested $7.76 per share.

Management said its decision to increase their full-year outlook now rather than in the third quarter “should tell you how strongly we feel the business is performing.” Constellation also accelerated its share-repurchase plan in the second quarter, grabbing up $500 million in buybacks after authorizing another $1 billion in April.

Among the ETFs with exposure to Constellation Energy are the Strive FAANG 2.0 ETF (FTWO B), the Virtus Reaves Utilities ETF (UTES ), and the Range Nuclear Renaissance ETF (NUKZ C+).

Many energy ETFs jumped in early August after the lion’s share of the earnings reports came in. The Energy Select Sector SPDR Fund (XLE A) rose from about $86 on Aug. 4 to $90 on Aug. 11, followed by another spike to $91 on Aug. 18 before pulling back slightly.

Similarly, the Vanguard Energy ETF (VDE A) jumped from about $121 on Aug. 4 to $127 on Aug. 18. Meanwhile, the oil-focused VanEck Oil Services ETF (OIH B+) rose from about $292 on Aug. 6 to $304 on Aug. 18.

Turning to clean energy ETFs, CTEX rose only slightly, jumping from about $20 on Aug. 11 to $22 on Aug. 22. Similarly, the Invesco Solar ETF (TAN C+) rose slightly, from $39 on Aug. 4 to $42 on Aug. 22. 

Generally, clean energy ETFs have been restrained recently by the broad-based underperformance of clean energy stocks, while traditional energy ETFs have spiked over the last month.

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