For Immediate Release
Chicago, IL – August 11, 2020 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Exxon Mobil Corporation XOM, Chevron Corporation CVX, Royal Dutch Shell plc RDS.A, TOTAL SE TOT and Eni S.p.A. E.
Here are highlights from Monday’s Analyst Blog:
How Did Big Oil Stack Up This Earnings Season?
Second-quarter results are in and the world’s mightiest energy companies have found out that drilling for oil is no longer a profitable business. Quarterly earnings and revenues sank on crude’s historic slide and demand destruction on account of the coronavirus pandemic, with some numbers coming in even worse than expected.
In this write-up, we will dive into the results from ExxonMobil, Chevron, Royal Dutch Shell, TOTAL and Eni.
The Underperforming ‘Dividend Aristocrats’
With sharply lower commodity prices and weakening refining margins, ExxonMobil and Chevron — the two U.S. supermajors — had a particularly tough quarter, posting wider-than-expected losses. The downturn in oil prices threw their upstream segments (exploration & production) into disarray. However, ExxonMobil’s quarterly profit from refining more than doubled on lower operating expenses, offsetting the impact of lower prices to some extent. Meanwhile, Chevron’s downstream business made a loss of $1 billion compared with a $729 million profit a year before. Both saw worldwide production fall from their year-ago levels but boosted output in the showpiece Permian Basin.
ExxonMobil didn’t take any substantial charge in the second quarter but Chevron wrote down the value of its assets by $1.8 billion due to weaker commodity price expectations. Importantly, ExxonMobil and Chevron — the only two energy stocks on the list of Dividend Aristocrats — have said that they would keep paying shareholders a quarterly dividend. ExxonMobil has a $3.48 annual payout and an 8% yield, while Chevron’s yearly dividend of $5.16 offers a yield of 5.9%.
The ‘Trading’ Outperformers
Coming to the European behemoths, Royal Dutch Shell and TOTAL both achieved profits when losses were expected, even though the companies took massive impairment charges. While Zacks Rank #2 (Buy) Shell announced a $16.8 billion write-down, TOTAL took an $8.1 billion charge in the second quarter on lower prices. Like their American counterparts, production fell, the E&P division bled and refining margins sank.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Despite all this, it was the oil-trading boom that positioned Shell and TOTAL for surprise second-quarter earnings. Even as the exact profit figures remain unavailable, Shell cited “very strong” trading results and TOTAL’s “trading activities did very well.” The extreme crude market volatility in the second quarter helped them boost profits.
The Dividend Cuts
Finally, we have London-based BP and Italy’s Eni. BP reported wider-than-expected losses, while Eni’s bottom line beat estimates even though it was in the red. As was the norm, quarterly production slid due to demand destruction and the OPEC+ restriction. The companies’ E&P segments performed poorly on price weakness but the downstream unit performed better. BP booked $17.4 billion in impairments and Eni wrote down the value of its assets by 3.5 billion euros.
Meanwhile, as the coronavirus crisis crushed fuel demand, BP and Eni became the latest Big Oil companies to reduce their payouts in a bid to preserve liquidity. Eni now expects to pay a full-year dividend of 55 euro cents a share compared with the earlier projection of 89 euro cents. BP slashed its quarterly dividend by 50% to weather the historic oil price crash and save funds.
Admittedly, second-quarter Big Oil earnings were anticipated to be ugly with negative growth expected on both top and bottom lines. It was always known that the full impact of the coronavirus pandemic and the oil price slump will only be felt in the April-June period when crude plunged into negative territory briefly.
True to apprehensions, the results turned out to be brutal. From upstream (exploration and production) to downstream (refining and distribution), no subset of the Big Oil’s much-celebrated, integrated business model was immune to the coronavirus-induced downturn. The price slump greatly impacted the results of their upstream unit for obvious reasons. At the same time, the downstream numbers were dragged down by lower utilization due to a collapse in consumption for jet fuel and gasoline. From BP’s first dividend cut since 2010 to ExxonMobil and Chevron’s record losses, the results send ominous signals.
However, the quarter’s extreme volatility also presented an opportunity for the likes of Shell and TOTAL to rake in massive trading profits — something missing from the books of ExxonMobil and Chevron. Meanwhile, all the firms continue to lower their cost structure in a bid to improve financial health.
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