XOM Earnings: Get Ready For Exxon Mobil Corporation To Disappoint … Again

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All energy investors will be looking towards next Tuesday. That’s when super major Exxon Mobil Corporation (XOM) will announce its latest quarterly and yearly earnings.

XOM Earnings: Get Ready For Exxon Mobil Corporation To Disappoint … AgainAs one of the largest energy firms — with assets spanning a multitude of nations and energy commodities, and across all sectors of the oil and gas industry — XOM’s earnings are an important bellwether for the sector. Truth be told, if a giant like Exxon is suffering, then smaller energy firms are pretty much DOA.

And it looks like XOM is going to have a tough going.

The sell-off in crude oil and natural gas prices came to a head during the fourth quarter of last year. So investors should expect XOM to report some pretty terrible numbers.

However, there could be a few ways that XOM may just surprise the street and come out with a real win in its earnings report.

Here’s what investors can expect from the Exxon earnings report.

Another Steep Drop at XOM

Let’s face facts — when your main gig is selling a commodity, any drop in the price of that underlying commodity is going affect your profits. Well, for XOM, the drop in oil is really going to sting this quarter — to the tune of a 50% decline in profits.

Overall, analysts expect Exxon to report earnings per share of just 64 cents. That’s about half of what it earned a year ago for the same quarter. Year-over-year, XOM will also see a hefty decline in sales. Revenue for the last quarter is expected to come in at $51.4 billion. That’s down from $87.3 billion for the same period in 2014, according to the Thomson Reuters.

The integrated giant’s yearly numbers aren’t that stellar either — showing declines in both profits and revenues for all of 2015 over previous year. For the full year, XOM’s revenues are expected to be around $254 billion. This is a 38% decline over 2014’s sales.

The culprit for these big-time drops has been the continued downward slide in crude oil prices. Prices for crude oil average just $46 per barrel, while natural gas came in at $2.45 per MMBtus. Both of these commodities realized sharp double-digit decreases from the third quarter of 2015’s averages. With these price drops in tow, XOM will naturally see lowered profits.

But lower crude oil and natural gas isn’t the only reason why XOM will see lowered profits. For one thing, Exxon is still spending like crazy.

It takes some big-time projects to move the needle at a big-time energy firm like XOM. And those big projects cost a pretty penny. In order to replace its dying legacy reserves, Exxon has been forced to take on some serious high-cost projects. That’s included major oil sands mines, as well as building a huge, new LNG facility in Papua New Guinea. The problem is that these investments have taken a toll on earnings in recent quarters., and XOM will have to keep spending at high levels at least through the year in order to bring many of these projects online.

Additionally, XOM has had to rely on its chemicals and refining segments to help boost its profits in recent quarters. The benefit of being an integrated producer is that when oil prices are low, you can squeeze out additional earnings from juicer margins in your downstream assets. However, for the latest quarter, refining won’t be such a panacea for Exxon.

Crack spreads have dropped and averaged down over the last three months. While they are still in the “juicy” range, they aren’t nearly as high as they were over the fall and summer. That’s because there’s now a glut of gasoline and other refined fuels on the markets. With lower crack spreads, XOM won’t be able to realize the kind of profits it had from this segment even a quarter ago.

Lower overall average commodity prices, still relatively high CAPEX spending and dwindling margins for refining does not a great quarter make.

XOM Premium May Disappear

As THE large diversified energy stock, Exxon has typically enjoyed a premium to its peers like Chevron Corporation (CVX) or BP plc (ADR) (BP). That was warranted given its size, scope and profits bigger than the GDPs of some nations. However, that premium could fade away as the firm reports another quarter of dour earnings.

Given the recent string of “bad” earnings reports, analysts have begun lowering their price targets and recommendations. Tudor Pickering Holt was the most bearish, cutting XOM to a “sell” rating and given it a $55 price target … about 27% lower than today’s selling price.

While XOM stock may not be a broad “sell,” it’s not exactly a great buy either. The recent string of bad Exxon earnings reports should continue into the new quarter. Oil and natural gas have only slid further down as the glut has become larger. With Iran set to start the spigots and pump away, that glut could get even larger. That’ll result in even lower averaged prices for the quarter. We know how that will turn out for Exxon’s bottom line.

The bottom line for investors is that things at XOM are going to get a lot worse before they get a lot better.

The latest quarter should be another example of how badly things have gotten in the energy sector.

 As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

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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/2016/01/q4-exxon-xom-earnings/.

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