ExxonMobil (XOM) Misses on Lowered Earnings and Revenue
The world's largest oil company, ExxonMobil (XOM: Charts, News), disappointed investors yesterday when it missed Wall Street estimates for its first quarter earnings. Analysts had expected higher energy prices throughout the quarter to boost the company's earnings, which were dragged down by a slowdown in production coupled with weaker North American natural gas prices.
Exxon's production declined by 4.55 million barrels of oil, or 5%, per day. Exxon's lower production was attributed to OPEC quota restrictions, which also crimped its natural gas output. Production-sharing contracts with oil-producing countries also limited its production capabilities. While the number of oil rigs across the United States has dropped, profits across the industry have remained relatively steady, partly due to assorted gas byproducts, which are sold off to other basic materials industries.
The company's U.S. upstream business also posted a 21% drop in earnings. Exxon's refineries and chemicals plants in America also posted moderate profit declines. Overseas, Exxon fared better, posting a lighter decline of 8%, or $6.79 billion, in non-US upstream earnings throughout Europe and Asia. The company attributed its international strength to longer-term contracts which keep oil prices more stable.
Compared to its industry peers, Exxon has been weighed down by its 2009 purchase of XTO, a leading US gas producer, which was primarily acquired for its natural gas business segment. Analysts have questioned Exxon's $41 billion investment in XTO, which has yet to become earnings accretive for Exxon, due to slumping natural gas prices in the United States. Natural gas prices are currently at a ten year low, due to a massive supply outweighing weak demand. Exxon attributes the weak demand for natural gas to a warmer winter, which has limited the need for natural gas heating in colder states. Exxon's natural gas production also grew at less than 1% from the previous year. Rival ConocoPhillips (COP: Charts, News) also posted a 1% production decline last week.
Despite current challenges, Exxon posted capital and exploration expenditures of $8.8 billion during the quarter, which continues its plan to invest $37 billion per year "over the next five years". This suggests that Exxon is still moving ahead to find new sources of oil, which will still fuel the world's newer, emerging economies. CEO Rex Tillerson stated, "Despite continuing economic uncertainty, we are progressing our robust investment plans to meet the energy demands of the future." Chevron (CVX: Charts, News), the company's primary rival, is also expected to post similar production declines on Friday. Like Exxon, Chevron's massive Australian natural gas projects and deep-sea drilling in the Gulf of Mexico are expected to keep margins tight over the next three to five years.
On the bright side, Exxon increased its quarterly dividend by 21% to 57 cents per share. The company also bought back $5 billion in shares during the first quarter to reduce float. In the second quarter, the company intends to do the same. Meanwhile, the stock trades with a forward P/E of 9.5 and a 5-year PEG ratio of 1.5, which suggest more upside ahead as energy prices stabilize. Stronger energy prices are dependent on the overall health of the global economy, but Exxon's massive, sprawling resources should allow it to outlive most financial storms on the horizon.
Other News About XOM
ExxonMobil hit by US natural gas prices
Natural gas prices take a bite out of Exxon's profits once more.
Production growth lifts Shell; Exxon falls short
Exxon's production value falls. Other Stocks in the News
Robust 1Q For Las Vegas Sands
Las Vegas Sands crushes earnings by 10 cents.
Apple Profit Surge Fueled by China Teachers to Furniture Makers
Apple finds a plethora of revenue streams in China.
Copyright 2012 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.