Exxon Mobil Corporation (XOM, Financial) reported a drop of 46% in its profit for the first quarter, ended March 31. The profit earned was $4.9 billion for the quarter as compared to the $9.1 billion in the same period last year. The main reason for the drop in profit was the low crude prices. Shares saw an increase of $1.13 to $89 in trading before the opening bell on Thursday. However, shares fell 5% at Wednesday’s closing price for this year.
Q1 Equations
First quarter profit reported was $4.9 billion, or $1.17 a share. For the same period last year, the profit earned was $9.1 billion, or $2.10 a share. Analysts, however, estimated Exxon to report a $0.83 EPS on revenue $56.39 billion, according to data compiled by Thomson Reuters. This quarter reported the lowest first-quarter profit as compared to the last six years. Besides, revenue also witnessed a drop of 37% as the Texas-based company reported a $67.62 billion as compared to last years’ revenue of $106.77 billion. The reason for the low profits and revenue is the low oil prices, which reduced from $100 a barrel to $50 a barrel in the second half of 2014. Due to this, many drilling projects suffered a loss. Hence, as a preventive measure, the company has decided to cut down on expenditure wherever possible. One strategic decision that Exxon has taken is the cutting down of capital spending by almost 12% to $34 billion. Rex Tillerson, CEO of Exxon has said that oil prices will remain low in the coming months. Hence, it is essential that fundamental changes be made as soon as possible.
Production saw an increase of 2% in the quarter as compared to the same period last year. Though activities related to production outside the United States bought in profit, earnings reduced by almost half the amount. The earnings from the units of marketing and refining however saw an increase. If these were to be taken into consideration, profit earned would be $1.17 per share, less than $2.10 for the same quarter in the previous year. According to estimates by eleven analysts, the average would be around $0.80 a share.
The company had acquired XTO Energy for $31 billion in 2010. However, the acquisition did not provide the oil and gas corporation the boost it needed. Brian Youngberg, an analyst, said that an acquisition would not provide for a positive effect. Instead, Exxon should focus on the internal aspects and work on existing projects, he said. The output of oil & gas was 4.2 million barrels oil equivalent a day, a rise as compared to the 97000 BOED last year. The refining division reported a $1.7 billion profit for the quarter, an increase compared to $854 million last year. The international operations contributed to the rise in the profits for the refining sector.
Investor take
Though the performance may not be up to the mark, the company is trying its best to increase production and other aspects. The stubborn low price of oil is playing havoc here. Exxon has always been in good books of its shareholders as it continuously returns money to them. The company announced a 6% rise to $0.73 a share in dividend on Wednesday. Jeff Woodbury, VP of investor relations department said that irrespective of the low oil prices, Exxon will strive on finding projects that will increase profits. This in turn, will ensure that investors receive a reliable & growing dividend. Share value has reduced by 13% in the last twelve months. However, if oil prices increase, things would turn in the favor of the oil giant. In all probability, higher returns would be achieved giving investors and the company officials a reason to rejoice.
