ExxonMobil: Earnings Rise, Sales Fall

Zacks

ExxonMobil Corporation’s (XOM) first-quarter 2013 earnings of $2.12 per share beat the Zacks Consensus Estimate of $2.03 by 4.4%. Earnings also improved 6% from last year's $2.00. The improved performance reflects stronger margins in the chemical business and lower costs (down by approximately 12.9% year over year).

Total revenue in the quarter decreased 12.3% year over year to $108.8 billion, and missed the Zacks Consensus Estimate of $117.7 billion amid lower production.

Operational Performance

Upstream: Quarterly earnings for the segment were more than $7.0 billion, down 9.8% from $7.8 billion a year ago. The decline was primarily due to lower liquid realizations and higher operating expenses. These were partly mitigated by improved natural gas realizations.

Production averaged 4.395 million barrels of oil-equivalent per day (MMBOE/d), down 3.5% year over year. When adjusted for the impact of entitlement volumes and OPEC quota restrictions, production was down 1.2%.

Liquid production declined 0.9% year over year to 2.193 million barrels per day due to field decline. This was partially offset by the stepping up of West African ventures.

Moreover, the field decline resulted in the natural gas production slump of more than 5.9% on an annualized basis.

Downstream: The segment recorded profit of $1.5 billion in the first quarter of 2013 against $1.6 billion in the year-ago period, mainly due to lower volumes and mix effects.

ExxonMobil's refinery throughput averaged 4.6 million barrels per day (:MMBPD), down 14.1% from the year-earlier level of 5.3 MMBPD.

Chemical: This unit contributed approximately $1.1 billion to the company’s profits, up 62.2% from the year-earlier level of $0.7 billion. The outperformance was mainly attributable to higher commodities’ margins.

Financials

During the quarter, ExxonMobil generated cash flow from operations and asset sales of $14.0 billion. The company returned more than $7.6 billion to shareholders through dividends/share purchases. It also repurchased 63 million shares for $5.6 billion. Capital spending increased 33% year over year to $11.8 billion.

Our Take

We believe that ExxonMobil is the world’s best-run integrated oil company, based on its track record of superior return on capital employed. The company boasts diversified operations across the world with several new projects coming online through 2013.

ExxonMobil’s strength is in its balanced operations, strong financial flexibility and continuous improvement in efficiency and cost control. The company’s efforts to build an unconventional resource portfolio both in North America and overseas is aimed at increasing production through increased exposure to large energy resources with long reserve life and low field declines.

With the spike in natural gas prices from higher demand, ExxonMobil expects unconventional gas to play a dominant role in the future supplies, owing to the rapid decline in conventional production.

However, we remain skeptical due to the company’s continued disappointing production trend, which decreased for 7 quarters in a row. The company stumbled on the production front, generating lower volumes, aggravated by lower liquid price realization. We see ExxonMobil struggling to grow production volumes over time.

Among the integrated players, ExxonMobil and Occidental Petroleum Corp. (OXY) beat their Zacks Consensus Estimate. However the true picture about the integrated players would emerge next week when the two goliaths Royal Dutch Shell plc (RDS.A) and BP Plc (BP) release their versions of the first quarter.

ExxonMobil currently retains a Zacks Rank #3 (Hold).

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