Why are some investors concerned about Exxon's latest earnings?

Part 3
Why are some investors concerned about Exxon's latest earnings? (Part 3 of 7)

Must-know: Important takeaways from Exxon Mobil’s 4Q13 earnings

4Q13 Results

On January 30, Exxon Mobil (XOM) reported 4Q13 and 2013 earnings.

xom 4qEnlarge Graph

Exxon reported diluted earnings per share of $1.91 in 4Q13, compared to consensus of $1.92. EPS in 4Q13 were up from 3Q13 EPS of $1.79, and down from 4Q12 EPS of $2.20. However, it’s important to note that a large part of earnings was from a gain on asset sales that are not a core part of Exxon’s operating business. Gains from asset sales mean that Exxon may have purchased and developed some assets and sold them for a profit, which was booked this quarter. However, Exxon’s core business is not to buy and sell assets, but rather to develop assets to produce oil and gas. So, many analysts didn’t anticipate this gain in their estimates of normal earnings, and they didn’t take into account the gain when they analyzed Exxon’s 4Q13 performance. Without the effect of certain non-recurring items in the quarter, Exxon’s EPS would have been $1.76. Generally, Exxon underperformed expectations on less-than-expected oil and gas production—particularly from international assets.

Capex during the quarter totaled $9.9 billion. Cash flow from operations and asset sales totaled $12 billion (including $1.8 billion of asset sales). During the quarter, Exxon paid out $2.8 billion of dividends and made $3 billion of share repurchases, for a total of $5.8 billion in cash distributed to shareholders. XOM stated that it expects to purchase another $3 billion of shares in 1Q14.

Earnings from XOM’s upstream segment (oil and gas production) totaled $6.8 billion, compared to 3Q13 upstream earnings of $6.7 billion. Total production was 4,216 thousands of barrels of oil equivalent per day, comprised of 2,235 thousands of barrels per day of liquids (oil and natural gas liquids), and 11,887 millions of cubic feet per day of natural gas.

Earnings from XOM’s downstream segment (refining and marketing) were $916 million, up from 3Q13 downstream earnings of $592 million.

Earnings from XOM’s chemical segment (which manufactures and sells petrochemicals) totaled $910 million, down from 3Q13 chemical segment earnings of $1.03 billion.

2013 results

Exxon reported diluted earnings per share of $7.37 in 2013, compared to consensus of $7.38. EPS in 2013 were down from 2012 EPS of $9.70. Capex during the year totaled $42.5 billion, including $4.3 billion of acquisitions. During the year, Exxon paid out $25.9 billion in shareholder distributions comprised of paid-out $11 billion in dividends, and the company made $15 billion of share repurchases.

Earnings from XOM’s upstream segment (which produces oil and gas) totaled $26.8 billion, compared to 2012 upstream earnings of $29.9 billion. Total production was 4,179 of barrels of oil equivalent per day, comprised of 2,202 thousands of barrels per day of liquids, and 11,836 millions of cubic feet per day of natural gas.

Earnings from XOM’s downstream segment totaled $3.4 billion, down $9.7 billion from 2012, as last year included a $5.3 billion gain related to restructuring in Japan. Earnings also declined $2.9 billion on lower margins in the segment, mostly due to a poorer refining environment.

Earnings for XOM’s chemicals segment totaled $3.8 billion, compared to $3.9 billion in 2012. Higher margins helped earnings by $480 million, and volume and mix increased earnings by $80 million, while the lack of a gain associated with restructuring in Japan (which occurred in 2012) negatively affected the year-over-year comparison by $630 million.

Management commentary

On its 4Q13 earnings call, Exxon provided commentary on the business environment for its operations. The company noted that global economic growth proceeded at a “modest” pace in 4Q13, with continued moderate growth in the U.S., a stabilizing growth rate in China, and a still lagging European economy. During the period, WTI prices declined more than $8 per barrel, and saw a wider discount to Brent crude, which finished the quarter roughly unchanged (for more on the difference between the two benchmarks, see Why the WTI-Brent spread affects US product oil exports). Meanwhile, U.S. natural gas prices remained around the $3.50-to-$4.00-per-MMBtu range.

XOM’s Downstream segment benefitted from stronger refining margins in the U.S., though weakness persisted in Europe and the Asia Pacific region. Note: Refining margins are strongly affected by crack spreads. For more on this correlation, please see Crack Spread 101). In XOM’s Chemical segment, product margins also declined in the quarter.

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