Earnings Preview for Exxon Mobil Stock (XOM)

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Crude oil and natural gas prices have been on a wild ride over the last three months. And we’re about to see what that wild ride has done for earnings in the energy sector. First up is one of the important bellwethers for the sector.

XOM Exxon Mobil Corp. (NYSE:XOM)We’re talking about integrated super major Exxon Mobil (XOM).

Given its size, asset base and huge economies of scale, it stands to reason that if XOM is suffering, then the entire energy sector should feel the heat. And with energy prices fallen even further during the third quarter, Exxon’s earnings could provide a valuable window into just how bad it’s going to be for the rest of the oil patch.

Here’s what to expect when XOM reports on Friday before the bell.

Expect Worse Numbers in Exxon Earnings

The last time Exxon reported earnings, it was the worst performance for the integrated major since 2009 when the world was going to heck. Well, it may be a little case of history repeating, because this quarter promises to be even worse.

Overall, oil prices have fallen further during the third quarter versus the second quarter. Brent benchmarked crude has fallen from around $65 per barrel down to about $47. Similarly, West Texas Intermediate (WTI) has also dramatically plunged. These weak oil prices aren’t going to be good for anybody, and Exxon is no different.

Analysts are expecting the firm to report adjusted profits of just $63.74 billion or around 89 cents per share of Exxon Mobil stock. That’s a far cry from the record numbers the integrated giant posted just a few years ago. It’s even a far cry from last quarter’s numbers, as well. If Exxon hits those numbers, it’ll be roughly an 11% decline from Q2. And the year-over-year comparison is even sadder: Projected earnings represent roughly a 54% decline.

Revenues are also expected to take a hefty dip. For the current reported quarter, revenues should come in at $63.75 billion. That’s substantially below Q3 2014’s $104 billion.

All in all, weaker crude oil and natural gas pricing won’t do anything to help Exxon Mobil stock.

Positives for Exxon Mobil Stock

Despite weaker crude oil pricing, XOM may actually beat analyst expectations thanks to lower commodity prices. As an integrated energy firm, Exxon has a hefty dose of refining and downstream muscle. These operations are able to feast on the lower feedstock costs and produce larger margins when prices are low.

Over the past few quarters, Exxon has leaned heavily on these downstream earnings to provide enough of boost to prevent full-on profit collapse. With prices even lower this round of earnings, Exxon stock could see a nice boost from this business segment.

Recent reductions to XOM may also benefit from recent reductions to its capex spending plans and readjusting the remaining spending towards currently more profitable areas. Like many energy firms, Exxon has cut back hard. However, given its size and scope, XOM has greater ability to shift resources. That shift and capex cutting could end up adding some meaningful profits back into XOM’s bottom line while also setting itself up for much-needed production gains down the road.

Bottom Line for Exxon Mobil Stock

At the end of the day, earnings for Exxon aren’t going to be pretty — even if it does get a few boosts from refining and capex cuts. XOM is going to see some massive declines in its sales and profits … possibly big enough to affect the pace of dividend increases and buyback activity. Exxon Mobil stock has already trimmed its lucrative buyback program twice this year.

The thing to remember is that earnings are a rear-looking metric. Since the end of the third quarter, oil prices have already begun to tick upwards, which is great news for Exxon Mobil stock. The expected drop in profits could be a temporary blip on the much higher long-term trend.

With that in mind, any dip in Exxon Mobil stock because of the firm’s results could be seen as a long term buying opportunity. Regardless of these results, XOM has the goods and liquidity to get it through the new “lower for longer” period that is currently facing the energy industry.

As of this writing, Aaron Levitt was long the Vanguard Energy ETF (VDE), which holds XOM stock.

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Aaron Levitt is an investment journalist living in Ohio. With nearly two decades of experience, his work appears in several high-profile publications in both print and on the web. Also likes a good Reuben sandwich. Follow his picks and pans on Twitter at @AaronLevitt.


Article printed from InvestorPlace Media, https://investorplace.com/2015/10/exxon-mobil-stock-earnings-xom-preview/.

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