Personal Finance

Earnings Miss Causes Southwestern Energy Company’s Stock to Tumble

A drilling rig at sunset.

What happened

Shares of Southwestern Energy (NYSE: SWN) fell sharply on Friday, and were down more than 11% by 3:00 p.m. EST. Fueling today's sell-off was the company's fourth-quarter results and 2017 guidance.

So what

On the one hand, Southwestern Energy's fourth-quarter results marked quite a turnaround for the company. That's after it reported adjusted net income of $39 million, or $0.08 per share, which was a significant improvement from last year's $6 million loss. However, analysts were expecting $0.04 per share more. The culprit was the company's declining production, which fell during the quarter due to its decision to limit drilling activities last year because of lower gas prices and balance sheet issues.

A drilling rig at sunset.

Image source: Southwestern Energy.

Those two factors also caused the company to report a decline in proved oil and gas reserves. Southwestern ended 2016 with 5,253 billions of cubic feet equivalent (Bcfe) of proved reserves, down from 6,215 Bcfe at the end of 2015. On a more positive note, the company did partially offset that decline with upward performance revisions and successful development activity in Northeast and Southwest Appalachia, as well as in the Fayetteville Shale.

Southwestern Energy also released its 2017 capital investment budget and guidance. The company anticipates spending between $1.175 billion to $1.275 billion, which it expects to fund with cash flow and the $200 million remaining from its 2016 equity raise. That money will enable it to drill enough new wells to produce between 890 to 910 Bcfe in 2017, up from 875 Bcfe in 2016.

Further, production by the fourth quarter of 2017 will be 20% higher than the same period of 2016. That said, this growth is coming at a time when gas prices are plunging due to tepid demand and rising supplies.

Now what

Southwestern Energy just didn't give investors what they wanted to see this quarter. Not only were earnings below expectations, but it released a growth-focused capex budget that it hasn't completely funded with cash flow. The concern is that the company will waste money growing production in a market that could be growing oversupplied due to another warmer-than-normal winter. If that's the case, Southwestern Energy's stock could have further to fall.

10 stocks we like better than Southwestern Energy

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Southwestern Energy wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of February 6, 2017

Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Personal Finance Videos

    #TradeTalks: Making the leap from school teacher to financial literacy advocate

    Call to Leap Founder Steve Chen joins Jill Malandrino on Nasdaq #TradeTalks​ for #FinancialLiteracyMonth​ to discuss making the leap from school teacher to financial literacy advocate.

    Apr 13, 2021

    The Motley Fool

    Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

    Learn More