Friday, July 31, 2015
Stocks appear on track to start today’s session effectively flat, with weak results from the Energy sector in the spotlight. The major indexes are ending a volatile July in positive territory, but the seasonally weak August month will likely produce sideways action at best.
The Exxon (XOM) and Chevron (CVX) reports today spotlight the pain in the oil patch as industry players brace themselves for a ‘lower-for-longer’ oil price environment. The comparisons to the same period last year are particularly dramatic for Chevron, the ‘oilier’ of the super-majors club, given the massive impairment charges the company had to take as a result of lower oil prices.
But even when there aren’t big Chevron-type impairments, earnings are down in a big way simply because oil prices are down more than -50% from the same period last year. This is prompting many of these players, Exxon and Chevron included, to cutback on capital expenditures as well as capital returns to shareholders. The cash flow crunch wouldn’t have a bearing on the dividends from these two industry leaders, but share buybacks have already been trimmed and will likely get cut even more going forward.
No doubt the Energy sector has been the weakest stock price performer year-to-date in the S&P 500 index, with Exxon and Chevron shares down -10.8% and -16.9% in the year-to-date period, respectively. Including the Exxon and Chevron reports this morning, we now have Q2 results from 85% of the sector’s total market capitalization in the S&P 500 index. Total earnings for these Energy sector companies are down -60.6% on -31.7% lower revenues, with only 52% beating EPS estimates and 44% coming ahead of consensus sales estimates.
This morning’s weak Energy sector results are having an impact on the aggregate picture for the S&P 500 index as well, for which we now have Q2 results from 354 index members. Total earnings for these index members that have reported results are down -2.6% from the same period last year on -4.5% lower revenues, with 69.9% beating EPS estimates and 50.4% beating top-line expectations. Excluding the Energy sector drag, total Q2 earnings would be up a respectable enough +5.3% on +1.3% higher revenues.
Sheraz Mian
Director of Research
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