Chevron’s 4Q14 earnings beat estimates
Chevron’s 4Q14 and FY14 earnings: Finding strength in volatility (Part 1 of 7)
Chevron’s 4Q14 earnings
On January 30, Chevron (CVX) reported earnings of $3.5 billion, or $1.85 per share for 4Q14, compared to $4.9 billion, or $2.57 per share, in 4Q13. Wall Street analysts had expected earnings per share of $1.64.
Upstream earnings pulled fourth quarter earnings down.
Upstream and downstream earnings
The image above notes that on a year-over-year (or YoY) basis, Chevron’s upstream earnings were down by ~$2.2 billion and fell on a quarterly basis by almost the same amount. The reason for the decrease lies in lower crude prices, which plummeted in the last quarter of 2014.
Average price realization for natural gas liquids and crude oil in 4Q14 was $66 compared to $90 a year ago.
Given its integrated business, Chevron was able to take advantage of lower crude prices in the form of lower priced feedstock at its downstream business. Downstream businesses make profits by buying cheap crude and selling the refined product at higher prices. In Chevron’s case, downstream earnings were significantly higher YoY, at ~$1.1 billion, although between fourth quarter and third quarter, earnings grew by a mere ~$131 million. The low earnings growth was a result of low refining margins.
Apart from the above reasons, higher depreciation charges and lower exploration expenses in the upstream segment and gains on asset sales in both the upstream and downstream segment also affected Chevron’s 4Q14 earnings, as did foreign currency fluctuations.
Revenue
Revenue for the quarter was ~$46 billion, which beat analysts’ estimates of $31 billion fair and square. Full-year revenues came in at ~$212 billion, 8% lower compared to last year. Rival ExxonMobil’s (XOM) revenues came in at ~$412 billion for the year, ~6% lower than last year.
A fall in revenues is understandable given the lower crude prices, resulting in lower price realizations. However for integrated companies such as Exxon and Chevron, the effect of low prices is far less profound compared to pure-play upstream players such as ConocoPhillips (COP) and Anadarko Petroleum (APC), who saw double-digit revenue declines of 13% and 21%, respectively. Combined, Chevron and Exxon make up 30% of the Energy Select Sector SPDR ETF (XLE).
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