The $340 billion oil giant reported its fourth quarter and fiscal 2016 results in late January. For 2016, ExxonMobil (XOM, Financial) sales fell 15.9% to $226.1 billion from 2015, and profits halved, or fell by 51.5%, to $7.84 billion – having a 3.5% profit margin.
As observed, ExxonMobil delivered lowered profits despite the 11.7% reduction in total expenses and deductions year on year. The oil company, in addition, was able to reduce its overall taxes paid secondary to $5.83 billion loss –Â income/loss before taxes –Â in its U.S. operations.
Contributing to the losses was ExxonMobil’s $2 billion impairment charge related to dry gas operations with undeveloped acreage in the Rocky Mountains region of the U.S.
Ă‚
“ExxonMobil demonstrated solid operating performance in 2016. Financial results for the year were negatively impacted by the prolonged downturn in commodity prices and the impairment charge.
“The company’s continued focus on fundamentals and our ability to leverage an attractive global portfolio through our integrated business ensures we are well positioned to generate long-term shareholder value.” – Darren W. Woods, chairman and CEO
The oil giant, once having a $504 billion market value prior to the market crash the previous decade, is scheduled to report its first quarter fiscal 2017 on April 28.
Total return
ExxonMobil has underperformed the broader Standard & Poor's 500 index in both short- and long-term time frames. According to Morningstar, the oil company delivered 1.07% total gains in the past year vs. S&P 500’s 19.06% while it had 2.01% total gains vs. 13.5% in the past five years.
Valuations
ExxonMobil trades at a rich premium of 43.6 times compared to its peers’ 17 times in terms of trailing earnings, according to GuruFocus data. The oil company also had a price-book (P/B) value of 2 times vs. the industry median of 1.14, and price-sales (P/S) ratio of 1.52 times vs. the industry median of 1.02.
ExxonMobil also had a 3.67% trailing dividend yield with a 159% payout ratio and 1.5% share buyback ratio.
In a 2017 forward sales and earnings average – having maintained the same share count – ExxonMobil would have price-sales and price-earnings (P/E) multiples of 1.15 times and 20.1 times using Reuters data.
ExxonMobil
ExxonMobil was incorporated in New Jersey in 1882. According to filings, ExxonMobil’s divisions and affiliated companies operate or market products in the U.S. and most other countries of the world.
In 2016, ExxonMobil generated 34%, or $73.5 billion, of its total sales from the U.S., 10% from Canada, 8% from the United Kingdom, and above or below near 5% in each of the following countries: Italy, Belgium, France, and Singapore.
ExxonMobil Corp. has several divisions and hundreds of affiliates, many with names that include ExxonMobil, Exxon, Esso, Mobil or XTO.
ExxonMobil’s principal business is energy, involving exploration for and production of crude oil and natural gas, manufacture of petroleum products and transportation and sale of crude oil, natural gas and petroleum products.
Also, ExxonMobil is a major manufacturer and marketer of commodity petrochemicals including olefins, aromatics, polyethylene and polypropylene plastics and a wide variety of specialty products. In addition, affiliates of ExxonMobil conduct extensive research programs in support of these businesses.
ExxonMobil indicated that the company has three operating segments that best define its business separately. These are the Upstream, Downstream and Chemical segments.
(10-K)
Upstream
The Upstream segment is organized and operates to explore for and produce crude oil and natural gas.
In 2016, the Upstream sales fell by 8.4% to $7.6 billion in the U.S. and fell by 20% in non-U.S. markets to $12.6 billion, having generated 9.2% of total ExxonMobil sales together*.
*corporate and financing figures were not included.
In 2016, the U.S. Upstream segment delivered a $4.15 billion loss vs. $1.08 billion loss in 2015. Meanwhile, the non-U.S. segment delivered earnings after income margin of 34.4% vs. 51.7% in 2015.
(10-K)
Downstream
The Downstream segment is organized and operates to manufacture and sell petroleum products.
In 2016, Downstream segment sales fell by 23.4% in the U.S. to $56 billion and fell by 13% in non-U.S. markets to $116.4 billion, which together contributed 78.8% in total ExxonMobil sales*.
*corporate and financing figures were not included.
In 2016, the U.S. Downstream segment generated earnings after income margin of 2% vs. 2.6% in 2015. Meanwhile, the non-U.S. Downstream segment margin was 2.7% vs. 3.5% in 2015.
(10-K)
Chemical
The Chemical segment is organized and operates to manufacture and sell petrochemicals.
In 2016, Chemical U.S. sales fell by 8.6% to $9.95 billion and 6.6% sales reduction to $16.1 billion in non-U.S operations. Chemical sales contributed 11.9% to total sales in 2016*.
*corporae and financing figures were not included.
In 2016, the U.S. Chemical segment generated earnings after income margin of 18.9% –highest among three segments –Â vs. 21.9% in 2015. Meanwhile, the non-U.S. Chemical segment margin was 17% vs. 11.8% in 2015.
(10-K)
In summary, consolidated sales and figures have declined in recent years.
Oil and gas reserves
(10-K)
As of year-end 2016, ExxonMobil had 4.2% decline in total proved reserves in crude oil to 7.75 billion barrels, 3.1% increase to 1.54 billion barrels in natural gas liquids, a whopping 84.6% decline to 701 million barrels in bitumen, 2.9% decline to 564 million barrels on synthetic oil, 6.2% decline to 56.5 trillion cubic feet on natural gas,and 19.3% decline to 19.97 billion barrels in oil-equivalent basis.
Oil and gas production
(10-K)
Oil and gas production relevantly stayed steady in the recent boom and bust years. ExxonMobil’s total crude oil production grew flat, 0.1%, in 2016 while NGL fell 1.9% in the same period.
Production prices and production costs
In 2016, total average production price per crude oil barrel fell by 15.5% to $40.39 vs. 6.3% decline in production costs per oil-equivalent barrel to $9.89. In review, average production price of natural gas per thousand cubic feet fell 32% to $2.83 in 2016.
Cash, debt and book value
As of December, ExxonMobil had $3.7 billion in cash and cash equivalents and $42.8 billion in notes, loans payable and long-term debt with a debt-equity ratio of 0.25 times vs. 0.22 times the year-prior. Also, ExxonMobil had a book value of $173.8 billion in 2016 vs. $176.8 billion in 2015.
(10-K)
*Commitments include asset retirement obligations, pension and other postretirement obligations, operating leases, take-or-pay and unconditional purchase obligations and firm capital commitments.
Cash flow
(10-K, ExxonMobil)
In 2016, cash flow from operations declined by 27% to $22.1 billion mostly because of its profits decline and cash outflows from asset sales in relation to before-tax amounts from the sale of service stations in Canada, the sale of Upstream properties in the U.S. and the sale of aviation fueling operations across multiple countries, according to company filings.
Capital expenditures –Â cash flow from operations minus capital expenditures –Â were $16.2 billion leaving ExxonMobil with $5.92 billion in free cash flow in 2016 vs. $3.85 billion in 2015. The oil company allocated 230%, or $13.6 billion, in dividends and share repurchases, net of issuance and payments to noncontrolling interests.
(10-K)
ExxonMobil allocated 286% of its free cash flow in shareholder payouts –Â dividends and share repurchases – on average. Also, ExxonMobil took in $4.3 billion debt and commercial paper, net reductions, in 2016.
(10-K)
Conclusion
Certainly, oil production prices decline more than ExxonMobil’s cost per barrel, but the oil company still was able to deliver a good level of profitability, overall, in the direst of the industry’s circumstances. In addition, a certain segment, chemicals, exhibited impressive profitability overseas.
ExxonMobil retained an acceptable leveraged balance sheet even not requiring taking more debt on a year-on-year basis and diluting its shareholders, in return delivering a good amount of free cash flow for the period.
Meanwhile, ExxonMobil does not see any slowdown in capturing business growth as capital expenditures for fiscal 2017 are expected to be at $22 billion vs. $16.2 billion in 2016.
Nonetheless, the oil company may have to configure its total payouts or reduce them to an acceptable level near its free cash flow figures.
(ExxonMobil Share Price vs. P/S ratio, GuruFocus)
Early this month, HSBC Securities rated ExxonMobil shares as a hold while lowering its price target to $85 from $90; while Credit Suisse upgraded to neutral from underperform.
Meanwhile, average analysts' price target was $88.23, or 7.6% upside from its share price of $82. Asking a 20% margin from these estimates would indicate a $70 per share price target – 17 times fiscal 2017 expected earnings.
In summary, ExxonMobil is a hold with a value of $76 per share.
Disclosure: I am long ExxonMobil shares.
Start a free seven-day trial of Premium Membership to GuruFocus.
