Chevron (CVX) Q4 Earnings Beat on Record Output, Dividend Up

Chevron Corporation CVX reported a comprehensive beat in the fourth quarter of 2018 on the back of higher revenues, record production and rising crude oil prices. Significantly lower net charges due to the absence of a tax outgo of $2.47 billion also aided overall results.

The U.S. energy major reported earnings per share of $2.06, surpassing the Zacks Consensus Estimate of $1.87 and also significantly improving from the year-ago profit of 73 cents. Quarterly revenues of $42.3 billion also beat the Zacks Consensus Estimate of $41.6 billion and were up 12.5% year over year.

Upstream: Chevron’s total production of crude oil and natural gas increased 12.5% from last year’s corresponding period to 3,083 thousand oil-equivalent barrels per day (MBOE/d) — the highest quarterly volume recorded in the company’s history. The U.S. output rose 27.8% year over year to 858 MBOE/d while the company’s international operations (accounting for 72.2% of the total) increased 7.5% to 2,225 MBOE/d.

Apart from the shale assets in the prolific Permian Basin, the record output can be attributed to increased contribution from the Gulf of Mexico and Wheatstone LNG development in Australia. Notably, the company expects to witness a year-over-year production growth of 4-7% in 2019.

The rise in production was also supported by higher oil and gas realizations in both international and domestic markets. However, the segmental profits declined to $3.3 billion from the year-ago figure of $5.3 billion on lower earnings from U.S. operations.

Notably, profits from U.S. operations sharply declined 74% due to the absence of $3.3-billion benefit from the U.S. tax reform that was recorded in the fourth quarter of 2017. Nevertheless, profits from the international business increased to $2.3 billion from $1.6 billion recorded in the year-ago quarter on the back of higher natural gas sales volumes and pricing gains.

Downstream: Chevron’s downstream segment recorded earnings of $859 million, 32.8% lower than the profit of $1.3 billion a year ago. The dismal profits are mainly attributed to a sharp fall in earnings from the U.S. downstream segment, which gained just $256 million in the quarter under review vis-à-vis $1.20 billion a year ago. The decline primarily underlined the absence of $1.16-billion benefit from the tax reform along with high costs, partly offset by higher refined products sales.

Earnings from the international downstream segment increased by a whopping 618% from the prior-year quarter to $603 million on margin gains from refined product sales.

A few days back, Chevron announced its decision to buy the Pasadena Refinery (which has a processing capacity of around 110,000 barrels per day) from Petrobras PBR for $350 million. Despite being the second largest oil and gas company in the United States, Chevron does not own any refinery in Texas. The acquisition of Pasadena refinery will aid the company in processing its soaring Permian output.

Despite lower profits from upstream and downstream segments, overall earnings of the firm came in at $3.7 billion, higher than the year-ago figure of $3.1 billion. This is because net charges (including debt financing activities; corporate, administrative and insurance operations, et al) in the quarter under review reduced to $419 million from $3.5 billion amid absence of tax outgo of $2.47 billion, along with forex gains.

Importantly, Chevron delivered a good cash flow performance— an important gauge for the oil and gas industry — with $9.1 billion in cash flow from operations during the quarter. Notably, cash flow in the full year of 2018 totaled $30.6 billion versus $20.3 billion in 2017.

On an encouraging note, the company maintained its dividend growth streak, marking the 32nd consecutive year of payout hike. The largest oil producer in the United States hiked its dividend by 7 cents per share, giving investors another reason to cheer. The company declared a dividend of $1.19 per share, payable on Mar 11, 2019 to its shareholders as of Feb 15, 2019. The integrated giant also repurchased shares worth $1 billion during the fourth quarter.

The Zacks Rank #3 (Hold) company spent $5.8 billion in capital expenditures during the quarter, up from the year-ago period’s $5.4 billion. Roughly 86.2% of the total outlays pertained to upstream projects.

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As of Dec 31, 2018, the San Ramon, CA-based company had $9.3 billion in cash and total debt amounted to $34.5 billion, with a debt-to-total capitalization ratio of about 18.2%.

Among the major integrated players, Exxon Mobil Corp. XOM and Royal Dutch Shell plc RDS.A topped earnings estimates in the fourth quarter of 2018.

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