Having previously preannounced that Q2 results would fall short of expectations for the earnings juggernaut investors have come to expects from US energy giants, this morning the US supermajor Exxon joined European peers Shell and Total in missing 2Q earnings estimates with a third straight drop in profit - the longest decline since the 2014-2016 oil-market crash - amid weaker natural gas prices and shrinking returns from fuel sales.
The earnings miss - the company's first in five quarters - comes after analysts downgraded expectations substantially after Exxon’s guidance earlier this month, and was mostly due to lower gas prices and refining margins with overall net income of $7.9 billion less than half that of a year ago. Still, despite the drop in energy prices (which have in recent weeks rebounded sharply), Exxon maintained its share buyback, and it’s on course to repurchase $17.5 billion this year. Combined with the dividend, Exxon’s $32.5 billion of shareholder returns would be the highest since 2008, and the 4th highest in the S&P 500 Index
Here is what Exxon reported for Q2:
Some more details:
Commenting on the results, CEO Darren Woods said that "the work we’ve been doing to improve our underlying profitability is reflected in our second-quarter results, which doubled from what we earned in a comparable industry commodity price environment just five years ago”
The company also explained that lower natgas realizations and industry refining margins adversely impacted earnings, while the results benefited from the absence of prior quarter unfavorable derivative mark-to-market impacts.
As noted above, energy Products 2Q totaled $2.3 billion, down $1.9 billion from the first quarter. Industry margins declined sequentially from a strong first quarter on weaker diesel margins as Russian supply concerns eased
“This reflects the significant opportunity to profitably grow our Low Carbon Solutions business by creating a compelling customer decarbonization proposition with the potential to reduce Gulf Coast industrial emissions by 100 million metric tons per year.”
Q2 capital and exploration expenditures were $6.2BN and $12.5BN for 1H, in line with full-year guidance of $23b to $25b
The company also announced second-quarter shareholder distributions of $8.0 billion, which included $4.3 billion of share repurchases and $3.7 billion of dividends. For the full year, Exxon’s $32.5 billion of shareholder returns (including $17.5BN in buybacks) would be the highest since 2008, and the 4th highest in the S&P 500 Index. Yet somehow, instead of cold hard cash, investors would rather buy into the AI hype...
Incidentally, Exxon’s free cash flow was "only" $5 billion in the quarter, not enough to cover the $8 billion of dividends and buybacks. But the oil giant has so much cash on hand from recent quarters that it was easily able to fund the payouts.
Looking ahead, Exxon said it was on track to structurally reduce costs by $9 billion at year end compared to 2019. The company also sees 3Q Corporate & Financing Expenses $400M-$500M.
For Q3, Exxon also said that it expects higher volumes for upstream on lower scheduled maintenance. Expect further questions from analysts on the call today about that.
The sellside reactions were mixed: RBC said the results this morning were a negative.
“Today’s results came in slightly weaker than expected across earnings and cash flow, and we would expect XOM to underperform the peer group today... Our recent downgrade of XOM was predicated on strong performance relative to peers, coupled with the potential for weaker earnings momentum from a more modest macro environment across oil, gas and refining and XOM’s 2Q results are evidence of this.”
Goldman analyst Neil Mehta also chimed in, noting that Exxon's Cash flow was in-line relative to GS expectations during the quarter at $13.0 bn excluding working capital and asset sales versus GS at $13.0 bn: "Relative to our numbers, US E&P and Corporate were contributors to the miss from an earnings standpoint. Worldwide production came in at 3,608 MBOE/d vs GS at 3,723 MBOE/d and FactSet consensus at 3,728 MBOE/d, with lower liquids/gas vs our estimates across regions. For the conference call, we expect the company to focus on (a) Refining and global Gas outlook, (b) update on structural cost savings efforts, (c) real-time product demand commentary, and (d) discussion on proposed Denbury acquisition and ability to repurchase shares in the interim."
Exxon stock slumped 2% in early trading, underperforming peer Chevron, which was down 0.8% and which also reported results earlier today.
Exxon's full investor presentation is below.