SM reports Q4 results – big beat, but heavy production outlook

SM reports Q4 results – big beat, but heavy production outlook

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SM Energy (NYSE:SM) reported Q4 results after the close, handily beating earnings, but guiding production lower, capex higher, and allocating cash flow to the balance sheet:

  • Earnings – SM reported Q4 adjusted earnings per share of $1.14, versus Street expectations for 76c, the Company generated $260m of free cash flow in the quarter, or ~6.3% of current market capitalization.
  • Production – Management guided the Street to 2022 production volumes of 144kboe/d (midpoint), versus Q4 2021 levels of 158kboe/d, indicating an expected sequential production decline of ~9%.
  • Capital – the Company guided capex to $750m, versus 2021 spend of $675m, an 11% increase year on year.
  • Allocation – the Board plans to allocate free cash flow to the balance sheet, announcing no plans for a dividend or buyback in 2022.

SM (SM) is generally well liked across the Street; however, a 9% production decline with an 11% capex increase and no plan to return capital to shareholders may struggle to find traction. Particularly as many peers plan to provide double-digit returns to shareholders in the current operating environment.

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