The oil giant, Chevron (CVX, Financial), posted its first quarter numbers on May 1 before the markets opened and the spectacular numbers astonished investors and analysts alike. Despite the fall in crude oil prices, Chevron’s management remains optimistic on the future of the oil company. Let’s quickly catch up on the numbers shared during the earnings call by Chevron’s management.
The numbers point to Chevron’s road to success
It could be rightly said that Chevron literally smashed the analyst expectations as the top and bottom line surpassed the Street estimates. The energy company posted revenue of $32 billion, far above the expectations for $26.3 billion. Earnings also came in at $1.37 a share for the quarter, surpassing the analysts’ estimate of $0.79 a share, according to Bloomberg.
However, the numbers were below the previous fiscal year’s first quarter due to the sudden decline in the crude oil prices over the past 9 months. In fact, net income dropped 42% year-over-year. Also, the earnings per share is down from the $2.36 a share earned in the first quarter of the prior fiscal year.
The foreign currency effects boosted the earnings by $580 million, which had played a negative effect during the prior year’s similar quarter. The upstream business earnings suffered in the quarter falling to $1.56 billion in the quarter, from $4.3 billion reported a year earlier. But the downstream line of business aided in offsetting the earnings decline from the upstream business line. Downstream earnings came in at $1.4 billion for the quarter, up from $710 million in the first quarter of the prior fiscal year.
CEO John Watson said during the press release – “First quarter earnings declined from a year ago due to sharply lower oil prices, which reduced revenue and earnings in our upstream business… Downstream operations were strong, benefiting from lower feedstock costs and improved refinery reliability…”
The oil company produced 2.68 million barrels of oil per day during the quarter, up from 2.59 million barrels of oil produced a year ago. This improvement in oil production was triggered from higher drilling activity in the U.S., Bangladesh and Argentina. But it lost $460 million in the first quarter in the U.S. due to the low oil prices.
Making the future secure
Responding to the continued fall in the crude oil prices, the company is already implementing cost cutting measures, approving new projects and streamlining its energy portfolio to remain profitable in the upcoming quarters when this headwind is expected to continue to gather momentum. Mr. Watson also stated – “We're taking a number of deliberate actions to lower our cost structure, and I expect these efforts to increasingly show through in our financial results as the year progresses…”
Final word
Chevron’s earnings reflect the management’s interest in remaining a profitable company in the long run even in the presence of temporary headwinds such as low crude oil prices which is negatively impacting its upstream line of business. Let’s stay tuned for the next quarter results when the impact of the cost reductions will be felt in the financial numbers.
