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Must-know: Insight into ExxonMobil’s earnings

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ExxonMobil’s trends

In this series, we’ve been analyzing ExxonMobil’s (XOM) performance over the years. Now, let’s move further down its income statement. We’ll see whether some of the trends it exhibited in earlier analyses extend to its net earnings.

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Net income

First, it’s worth mentioning that a large portion of ExxonMobil’s earnings come from “non-operating” sources. Essentially, this is income from its interests in affiliates and joint ventures. This reflects the sheer scope of the company’s operations.

Second, the volatility in ExxonMobil’s revenues and operating earnings extends to its net income.

However, when we look at a finer measure of the company’s profitability—its profit margin or net income scaled by its revenues—the “resilience” trend is influential again. We saw resilience in its operating margin and EBITDA (earnings before interest, tax, depreciation, and amortization) margin.

ExxonMobil’s profit margin decreased less than its operating margin. This indicates strong contributions from its non-operating interests. Also, it shows good financial management.

In 3Q14, ExxonMobil reported a profit margin of ~8.5%. Chevron (CVX) reported a profit margin of ~11.25%. Their international peer, Royal Dutch Shell Plc (RDS.A), reported a profit margin of ~4.15%.

To gain low-cost and diversified exposure to ExxonMobil, Chevron, and other American energy companies, investors should consider the iShares U.S. Energy ETF (IYE) and the Energy Select Sector SPDR Fund (XLE). Their holdings in ExxonMobil and Chevron are above 30%.

By segment

Looking at ExxonMobil’s earnings by segment provides some insight. ExxonMobil’s revenues from its refining business are massive. The revenues from its upstream and chemicals divisions are about even. They’re at lower levels. From its upstream division, ExxonMobil’s earnings are massive. The earnings from its refining and chemicals divisions are about even. They’re at even lower levels.

This implies that with the prevailing energy prices in recent years, ExxonMobil enjoyed a profit margin of around 70% from its upstream business.

By region

By region, ExxonMobil’s profits—as we saw with its revenues earlier—seem to be drifting more in favor of the US versus the rest of the world.

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