Why Exxon’s Massive Earnings Decline Is a Triumph

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Exxon Mobil Corp. (NYSE: XOM) reported estimated third-quarter 2019 results before markets opened Friday morning. The integrated oil and gas giant posted quarterly diluted earnings per share (EPS) of $0.75 on revenues of $65.05 billion. In the same period a year ago, the company reported EPS of $1.46 on revenues of $76.61 billion. Third-quarter results also compare to the consensus estimates for EPS of $0.67 on revenues of $64.79 billion.

EPS included a favorable tax-related item of about $300 million, adding $0.07 per share.

Net income in the quarter dropped by 49% from $6.24 billion a year ago to $3.17 billion. Oil-equivalent production rose by 3% year over year in the third quarter to 3.9 million barrels a day.

Earnings in the company’s upstream segment (exploration and production) fell by $569 million due to lower prices and “higher growth-related expenses.” Downstream earnings (refining and marketing) dropped by $288 million year over year due to “lower fuel margins with reduced North America crude differentials.”

Capital spending totaled $7.72 billion in the quarter, up 17% year over year. Operating cash flow totaled $9.08 billion, implying free cash flow of around $1.36 billion.

Exxon’s chief executive and board chair, Darren Woods, said: “We are making excellent progress on our long-term growth strategy. Growth in the Permian continues to drive increased liquids production and we are ahead of schedule for first oil in Guyana.”

The company did not provide guidance in its press release, but analysts are expecting fourth-quarter EPS of $0.76 on revenues of $64.72 billion, compared with EPS of $1.41 and revenues of $71.89 billion in the fourth quarter of 2018. For the full year, analysts are looking for EPS of $2.86 on revenues of $268.13 billion, compared with 2018 EPS of $4.88 and revenues of $290.21 billion.

Even if we exclude the seven-cent-per-share tax benefit, Exxon beat the consensus EPS estimate by a penny and topped the revenue estimate by about $250 million. In the current global climate of low crude oil prices and limited economic growth, this is what passes for a victory. As of Thursday’s close, Exxon stock had dropped by around 15%, from $80.67 to $67.57, in the past 12 months.

Exxon’s shares traded up about 1.6% Friday morning to $68.66. The stock’s 52-week range is $64.65 to $83.75. Analysts had a 12-month price target of $79.14 before this morning’s report.


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