Exxon Mobil Warns of Fourth-Quarter Earnings Pressure Amid Lower Oil Prices
Exxon Mobil Corp.’s stock declined by 1.4% on Wednesday following the oil giant’s announcement that it anticipates lower oil prices and tighter refining margins will negatively impact its fourth-quarter earnings. This news coincides with a broader market concern as oil prices, particularly the U.S. West Texas Intermediate (WTI) benchmark, have experienced a notable decline of about 6.5% in the fourth quarter amid an oil surplus and fears of a slowdown in the Chinese economy.
Impact of Market Conditions on Earnings
In a regulatory filing, Exxon acknowledged that while rising gasoline prices in its upstream segment would offer some relief, the overall outlook remains grim. The company predicts that declining liquids prices could diminish upstream earnings by somewhere between $500 million to $900 million from the third quarter’s results.
Notably, Exxon reported a net income of $8.6 billion in the third quarter, bolstered by $6.2 billion from upstream operations. Despite the anticipated earnings drop, changes in gas prices are expected to improve earnings by up to $400 million. However, the company is bracing for reduced earnings in its energy products sector, estimating a decrease of $300 million to $700 million due to lower industry margins. The chemical products business also faces expected declines ranging from $300 million to $500 million in earnings, while timing effects are likely to further cut energy product earnings by $500 million to $900 million.
Upcoming Earnings Report and Analyst Expectations
Exxon is slated to release its fourth-quarter earnings report on January 31. Analysts at FactSet are projecting earnings per share (EPS) of $1.73 alongside revenue of $85.260 billion. Expectations around these numbers are varied: Mizuho’s analysts suggest that the figures they examined imply an EPS range from $1.03 to $1.88, which is approximately 18% below their earlier forecast of $1.79. Specifically, Nitin Kumar’s team at Mizuho has revised their EPS estimate down by 13% to $1.55. Meanwhile, JPMorgan is projecting an EPS range of $1.04 to $1.99. Notably, analyst John M. Royall indicated that, based on historical data, Exxon typically reports results slightly above the midpoint of valuations provided by analysts.
Amidst these expectations, it’s essential to recognize that the company is accounting for several one-time items—including divestments, impairments, and tax-related adjustments. These adjustments are seen as likely contributing a net positive impact of approximately $150 million at the midpoint, essentially suggesting an adjusted EPS of $1.55 on a generally accepted accounting principles (GAAP) basis.
Historical Context and Recent Developments
Exxon’s robust third-quarter earnings were notably enhanced by its acquisition of Pioneer Natural Resources, a transaction valued at over $60 billion that significantly expanded Exxon’s presence in the Permian Basin in West Texas; the deal was finalized in May. The cautionary statements from Exxon followed a similar warning from Shell, highlighting broader challenges facing the oil and gas industry.
In the past year, Exxon’s stock performance has lagged behind that of the S&P 500 index, which surged by 24%, while Exxon’s shares gained only 6.4% during the same time frame.
Conclusion
As Exxon Mobil Corp. prepares for the challenging environment ahead, investors, analysts, and market participants will be closely monitoring the fourth-quarter earnings report. The anticipated effects of lower oil prices and tightening margins underscore the pressures that continue to confront one of the world’s largest energy producers. How the company navigates these challenges will be pivotal in shaping its future financial endeavors and market position.