Exxon Earnings Beat from Higher Gas Prices - Analyst Blog

ExxonMobil Corporation XOM posted first-quarter 2014 earnings of $2.10 per share, beating the Zacks Consensus Estimate of $1.88. The upside came from steeper natural gas prices. However, earnings per share dropped 1% from $2.12 in the year-ago quarter.
 
Total revenue in the quarter decreased 1.5% year over year to $106.8 billion, and also came in below the Zacks Consensus Estimate of $111.4 billion.
 
Operational Performance
 
Upstream: Quarterly earnings for the segment were $7.8 billion, up $746 million year over year. The improvement was primarily aided by higher natural gas realizations, which were partly mitigated by lower liquids realizations.
 
Production averaged 4.151 million barrels of oil-equivalent per day (MMBOE/d), down 5.6% year over year. Liquid production decreased 2.1% year over year to 2.148 million barrels per day owing to the expiry of Abu Dhabi onshore concession. Natural gas production was 12,016 MCF/d (millions of cubic feet per day), down 1,197 MCF/d from 2013, primarily due to lower demand.

Downstream: The segment recorded profit of $813 million in the first quarter, down $732 million year over year, mainly due to weaker refining margins.
 
ExxonMobil's refinery throughput averaged 4.5 million barrels per day (MMBPD), down 1.5% from the year-earlier level of 4.6 MMBPD.
 
Chemical: This unit contributed approximately $1.0 billion to the company's profits, down $90 million from the year-earlier quarter. The downside was mainly due to lower margins.
 
Financials
 
During the quarter, ExxonMobil generated cash flow from operations and asset sales of $16.2 billion. The company returned $5.7 billion to shareholders through dividends/share repurchases. Capital spending decreased nearly 28% year over year to $8.4 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 2014.
 
ExxonMobil's strength is in its balanced operations, strong financial flexibility and steady improvement in efficiency and cost control. The company's efforts to build an unconventional resource portfolio both in North America and overseas are aimed at increasing production through wider exposure to large energy resources with a long reserve life and low field declines. However, we are skeptical about the company's near-term performance due to its muddled refining fortunes.
 
ExxonMobil currently has a Zacks Rank #3 (Hold). However, there are certain Zacks Ranked #1 stocks – Helmerich & Payne, Inc. HP, Clayton Williams Energy, Inc. CWEI and Matrix Service Co. MTRX – that appear more rewarding for the short term.