U.S.energy behemoth ExxonMobil Corp. (XOM) posted third quarter 2011 earnings of $2.13 per share, showing a substantial improvement from the year-earlier earnings of $1.44. However, the company’s earnings barely managed to beat the Zacks Consensus Estimate of $2.11.
The company’s adjusted earnings shot up 40.5% year over year to $10.3 billion from $7.5 billion, driven by higher commodity price realizations and improved refinery margins.
Total revenue in the quarter registered a nearly 32% year-over-year improvement to reach $125.3 billion, comfortably surpassing the Zacks Consensus Estimate of $115.7 billion.
Operational Performance
Upstream: Segmental earnings were $8.4 billion, up substantially from the $5.5 billion a year ago. The growth primarily reflects higher crude oil/natural gas realizations, partially offset by production mix and volume effects.
Production averaged 4.3 million barrels of oil-equivalent per day (MMBOE/d), down 3.8% year over year, as increased production in Iraq, Qatar and Russia was more than offset by field decline. When adjusted for the impact of entitlement volumes and OPEC quota restrictions, production decreased 4%.
Downstream: The segment recorded profit of $1.6 billion as against $1.2 billion in the year-ago period. The improvement reflects positive volume and mix effects.
ExxonMobil's refinery throughput averaged 5.2 million barrels per day (MMBPD), down 2.5% from the year-earlier level of 5.4 MMBPD. Total refined product sales of 6.558 MMBPD were down slightly from the year-ago level of 6.595 MMBPD.
Chemical: This unit contributed $1.0 billion to the company’s profits, down 18.4% year over year. The underperformance was mainly due to lower sales volumes, partially mitigated by improved margins.
Cash Flow
During the quarter, ExxonMobil generated cash flow from operations and asset sales of $16.3 billion and returned more than $7 billion to shareholders through dividends/share purchases. Capital spending decreased 1.7% year over year to $8.6 billion.
Our Take
Irving, Texas-based oil and natural-gas powerhouse, ExxonMobil –– the largest U.S. oil firm by market value ahead of Chevron Corp. (CVX) –– is the best-run integrated oil company in the world given its track record of superior return on capital employed. It has long been a core holding for investors seeking a defensive name with continued dividend growth.
Given ExxonMobil’s significant share in the upstream business, we believe it will retain its leverage to higher oil prices going forward.
However, as access to new energy resources becomes more difficult, ExxonMobil, like most of its peers, will face headwinds to replace its reserve. Given its large base, achieving growth in oil and natural gas production has been a challenge for the company over the last several years.
With the established oil producing regions of Europe and North America well beyond their prime, the search for opportunities has pushed ExxonMobil into riskier regions. Hence, we maintain our long-term Neutral recommendation for the company.
ExxonMobil currently retains a Zacks #3 Rank (short-term Hold rating).
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