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Exxon (XOM) Down 2.2% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Exxon Mobil (XOM). Shares have lost about 2.2% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Exxon due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

ExxonMobil Beats Q1 Earnings & Revenue Estimates

ExxonMobil reported better-than-expected results for first-quarter 2020, thanks to growth in production volumes from the prolific Permian and Guyana oil resources. This was offset partially by lower industry refining margin and decline in commodity prices.

The integrated energy giant’s earnings per share of 53 cents surpassed the Zacks Consensus Estimate of 4 cents. However, the bottom line declined marginally from the year-earlier quarter's 55 cents per share.

Total revenues of $56,158 million beat the Zacks Consensus Estimate of $53,800 but deteriorated from the year-earlier figure of $63,625 million.

Maintains Dividend

On Apr 29, ExxonMobil announced that it has maintained its quarterly dividend at 87 cents per share, likely to be paid on Jun 10, to shareholders of record as of May 13.

Since the coronavirus pandemic has shocked the energy market, many leading energy firms have opted to slash dividend as a measure of preserving cashflows.

Hence, the company’s decision to maintain dividends is worth appreciating.

Operational Performance

Upstream

Quarterly earnings of $536 million plunged from $2.9 billion a year ago, primarily due to lower oil and gas price realizations. The downside was offset partially by higher liquid production volumes.

Operations in the United States recorded a loss of $704 million against a profit of $96 million in the March quarter of 2019. Moreover, the company reported earnings of $1.2 billion from Non-U.S. operations, drastically down from the year-ago quarter’s $2.8 billion.

Production: Total production averaged 4.046 million barrels of oil-equivalent per day (MMBoE/D), higher than 3.981 MMBoE/D a year ago, thanks to contributions from Permian and Guyana resources.

Liquid production increased to 2.480 million barrels per day (MMBbls/D) from 2.327 MMBbls/D in the prior-year quarter. While production from the United States, Canada and Asia rose significantly, it declined in Europe and Africa. However, natural gas production was 9.396 billion cubic feet per day (Bcf/d), down from 9.924 Bcf/d a year ago, due to lower output from Europe.

Price Realization: In the United States, the company recorded crude price realization of $42.82 per barrel, lower than the year-ago quarter’s $53.30. The same metric for non-U.S. operations declined to $41.96 per barrel from the year-ago $57.12. Moreover, natural gas prices in the United States were recorded at $1.69 per thousand cubic feet (Kcf), below the year-ago quarter’s $2.93. Similarly, in the Non-U.S. section, the metric fell to $5.60 per Kcf from $7.18 in first-quarter 2019.

Downstream

The segment recorded a loss of $611 million, wider than the year-ago loss of $256 million. The underperformance can be attributed to lower industry refining margin from operations in America and outside.

Notably, ExxonMobil's refinery throughput averaged 4.1 MMBbls/D, higher than the year-earlier level of 3.9 MMBbls/D.

Chemical

This unit recorded $144-million profit, down from $518 million in the year-ago quarter due to the decline in margin and volumes from non U.S. operations.

Financials

During the quarter under review, ExxonMobil generated cash flow of $7.3 billion from operations and asset divestments, up from $6.2 billion a year ago. The company's capital and exploration spending rose 8% year over year to $7.1 billion.

At the end of first-quarter 2020, total cash and cash equivalents were $11.4 billion, and debt amounted to $59.6 billion.

Guidance

The coronavirus pandemic has dented global energy demand, leading crude prices to remain in the bearish territory. In wake of this unfavorable business scenario, ExxonMobil has slashed its 2020 capital budget by 30% to roughly $23 billion. The integrated firm has also decided to lower planned cash operating expenses for this year by 15%.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -23.05% due to these changes.

VGM Scores

Currently, Exxon has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Exxon has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.



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