Exxon Mobil Corporation, Chevron Corporation, Phillips 66: Integrated Majors Up To Bat

crudeoilBob Ciura:  It’s been a disastrous past two years for the energy sector. With the price of oil falling from over $100 per barrel at the 2014 peak to the February low of $27 per barrel, Big Oil has taken a big beating. Revenue and earnings have fallen off a cliff, even for the best-of-breed companies.

Big Oil

This week offered a glimpse into how Big Oil fared in the first quarter, and not surprisingly, the results were very weak. Commodity prices have recovered somewhat off their February lows but are still nowhere near the levels needed to grow earnings in this climate.

Friday was a busy day for Big Oil. There were three major U.S. oil companies that posted quarterly results: Exxon Mobil (NYSE: XOM), Chevron (NYSE: CVX) and Phillips 66 (NYSE: PSX).

Integrated Majors Up to Bat

Exxon Mobil earned $1.8 billion in its first quarter, thanks largely to a 33% reduction in capital spending. Still, earnings fell 63% from $4.94 billion a year ago. It was Exxon’s lowest quarterly profit since the third quarter of 1999.

Exxon Mobil did manage to beat analyst forecasts on both revenue and earnings per share, which pushed its stock price higher on a down day for the market. Revenue came in at $48.71 billion, which significantly exceeded expectations of $44.75 billion. EPS posted at $0.43, which again beat Wall Street expectations. Analysts forecast $0.31 per share on average.

Exxon Mobil has performed poorly, but in relation to the energy sector, its fundamentals have held up better than most. Exxon Mobil still earned $16.2 billion in profit last year. It generated a 7.9% return on average capital employed, which was far higher than most other companies in its integrated peer group, including Chevron.

Chevron posted a steep $725 million loss in its first quarter. On a per-share basis the loss came out to $0.39; this was a bigger loss than the $0.20 per share analysts were expecting. The good news is that revenue beat expectations – sales clocked in at $23.55 billion, compared to $21.4 billion projected.

One of the reasons why Exxon Mobil has accomplished consistent profitability and inBob Ciura:ustry-leading returns on capital is by focusing on efficiency and cutting costs everywhere it could. It slashed its stock buyback program by $9 billion last year. Capital and exploratory spending came in at $31.1 billion last year, down 19% from the previous year.

Meanwhile, Chevron reported a huge $1.4 billion loss in its upstream exploration and production business last quarter.

The key factor helping the integrated majors like Exxon Mobil and Chevron is their refining businesses. Refining actually performs better when oil prices decline, because lower oil means lower feedstock costs and higher refining margins. Exxon Mobil’s downstream earnings more than doubled last year, to $6.5 billion.

This has at least helped Exxon Mobil and Chevron keep their dividends intact. Exxon Mobil actually increased its dividend on April 27, marking the 34th year in a row of dividend hikes. Along with its quarterly results, Chevron declared its quarterly dividend, which yields 4%.

Having large refining business is providing some measure of shelter from the storms. Still, in this market, even the refiners aren’t spared from steep sell-offs if they miss estimates.

Even Refiners Aren’t Safe

Phillips 66 released earnings on the same day as Exxon Mobil and Chevron, but its results weren’t much better.

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