August 10, 2017 / 9:18 PM / 3 years ago

Profit miss seen failing to slow Petrobras debt reduction

RIO DE JANEIRO/SAO PAULO (Reuters) - Petróleo Brasileiro SA’s second-quarter profit miss may be just a hiccup in efforts by Brazil’s state-controlled oil producer to trim $89 billion in liabilities, although weak oil prices and fuel margins could further slow debt-reduction, investors said on Thursday.

Brazil's state-run Petrobras oil company headquarters is pictured in Rio de Janeiro, Brazil, August 10, 2017. REUTERS/Ricardo Moraes

Net income fell 93 percent last quarter after Petrobras (PETR4.SA) agreed to join a tax regularization program that triggered massive charges and offset the impact of sharp cost and expense controls. As a result, operational profit fell 24 percent and cash flow generation came in below expectations.

While quarterly results might have meant a short-lived break in Chief Executive Officer Pedro Parente’s bid to speed up debt reduction and focus on output from massive reserves lying below the Atlantic Ocean’s seabed, Petrobras has slowly regained the ability to borrow and generate cash in a sustainable way, investors said.

Parente and Chief Financial Officer Ivan Monteiro said all sources of funding, local and overseas, have opened again to Petrobras, the world’s most indebted major oil firm. Petrobras will refinance a heavy repayment calendar through 2020 and is set to borrow from state development lender BNDES for the first time in several years.

“We are slowly doing the homework of fixing the company’s dynamics, especially in the debt and financing fronts,” Parente told reporters at an event to discuss quarterly results.

Debt minus cash fell about 7 percent from $96.3 billion at the end of March, the slowest reduction over the past year. Still, net debt slipped to the equivalent of 3.23 times annualized operational earnings in June from 3.5 times in March - Parente targets a 2.5 times ratio for year-end 2018.

“I’m pleased to see how Petrobras keeps generating cash, stays resilient and cuts debt despite the challenging outlook” for prices and domestic fuel margins, said Pedro Albuquerque, who oversees São Paulo-based Cosmos Capital FIM hedge fund.

Net income came in at 316 million reais ($100 million) last quarter, down from 4.449 billion reais in the prior three months. The result missed an average consensus estimate of 2.405 billion reais.

Earnings before interest, tax, depreciation and amortization - a gauge of operational profit known as EBITDA - fell 24 percent to 19.094 billion reais from the prior quarter. It missed a consensus estimate of 20.214 billion reais.

EBITDA fell to 29 percent of revenue in June from 37 percent in March, reflecting weaker operational trends and an unexpected 2 percent decline in sales.

The decision to join the PERT tax plan offset cost and general and administrative expense controls, as well as a slight drop of 1 percent in capital spending.

The company kept targets for output and assets disposal unchanged. Parente expects a revision to Petrobras’ $74 billion, five-year investment plan will be ready by September.

Management will discuss results with investors on Friday.

Reporting by Marta Nogueira, Alexandra Alper, Rodrigo Viga Gaier, Guillermo Parra-Bernal and Roberto Samora; writing by Guillermo Parra-Bernal; editing by Andrew Hay and Phil Berlowitz

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