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Shell warns of weak economic outlook despite bumper profit

London

ROYAL Dutch Shell Plc said the worsening economy could slow the pace of returns to shareholders, overshadowing a strong third-quarter trading performance that yielded bumper profits.

While the company comfortably beat even the highest analyst estimate for third-quarter profit, shares dropped the most in almost a month after chief executive officer Ben van Beurden warned of uncertainty around the current pace of share buybacks and reduction in gearing - Shell's ratio of debt to equity.

It's a performance that echoes Shell's closest rival BP Plc, which also posted better-than-expected earnings but disappointed shareholders hoping for a dividend increase.

The third quarter was difficult for energy producers, with crude prices sinking over worries about the impact of the US-China trade war while natural gas markets endured a long stretch of oversupply.

"The prevailing weak macroeconomic conditions and challenging outlook inevitably create uncertainty about the pace of reducing gearing to 25 per cent and completing the share buyback programme within the 2020 timeframe," Mr van Beurden said in a statement on Thursday.

Shell said adjusted net income was US$4.77 billion in the quarter, beating the average analyst estimate of US$3.92 billion. That compares with profit of US$5.62 billion in the same period last year, and improves on a surprisingly weak second quarter. Cash flow from operations including working capital, perhaps the single most important measure for Shell as it aims to distribute US$125 billion to shareholders between 2021 and 2025, was US$12.25 billion, little changed from a year earlier.

"Common sense suggests the balance sheet is much more important than an arbitrary target on the buyback, especially if the company plans to continue the buyback post 2020," RBC analyst Biraj Borkhataria said in a note. BLOOMBERG

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