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Shell shares tumble more than 5% as Q2 earnings sharply miss mark

Shares in Royal Dutch Shell PLC were trading more than 5% lower early Aug. 1 after the Anglo-Dutch major, like most of its European counterparts, reported a sharp miss in second-quarter results in the wake of a drop in global oil and natural gas prices.

Shell's second-quarter earnings plunged 26% year over year, falling far short of analysts' expectations, and sank to their lowest levels in more than two years due to a combination of lower energy prices and softer refining and chemical margins, company executives said during an Aug. 1 earnings conference call.

Shell's earnings attributable to shareholders were $3.46 billion in the second quarter, down from $4.69 billion in the same quarter of 2018 and well below the S&P Global Market Intelligence consensus net income estimate of $4.88 billion.

The drop in earnings weighed on Shell's share price Aug. 1. As of 10:15 a.m. ET, Shell's B shares, the most widely traded, were down 5.44% to 2,461 pence on the London Stock Exchange, while its A shares were down 5.28% to 2,457 pence. Concurrently, London's FTSE 100 Index was down 0.33% early Aug. 1.

Although the company's free cash flow, which is used for dividends and share buybacks, slipped to almost $6.9 billion in the second quarter, Shell said it kicked off the next phase of its buyback program, in which it plans to purchase A and B shares for a maximum $2.75 billion until Oct. 28. The company still intends to complete its $25 billion buyback plan by the end of 2020, Shell CFO Jessica Uhl said during the call.

The major started the share repurchase program in 2018 as oil prices started to recover after three years of malaise. From 2015-2017, Shell introduced a scrip dividend, giving shareholders the option to be paid in either shares or cash as the company faced sliding oil prices and sought to buy BG Group PLC. Since its inception, Shell has repurchased $9.3 billion in shares, Uhl said.

Shell's second-quarter operating cash flow, an important measure of company growth that is closely monitored by analysts, improved during the period, rising to more than $11 billion from $9.5 billion in the prior quarter.

"Taking into account the additional cash flow expected from new projects and the [impacts of adopting the IFRS 16 accounting standard], we expect to see organic free cash flow within the range of $28 billion to $33 billion by the end of 2020," Uhl said.

Shell's expenditures in the second quarter were more than $5.3 billion, with spending for the full year still within the prior guidance range of $24 billion to $29 billion, Uhl said.