- Exxon Mobil remains a rare oil company that makes money.
- Exxon's profits from refining and selling oil offset its losses from production.
- When oil prices rebound, Exxon is going to be a great stock to own.
Exxon Mobil (NYSE:XOM) smashed Q4 2015 earnings expectations before the market opened on 2 February 2016, reporting earnings of $2.78 billion, or 67 cents/share (against 49 cents expected) on revenue of $59.81 billion (against $51.36 billion expected.
Despite beating earnings expectations, Exxon's numbers were still well-short of the $8.84 billion, $1.56/share earned in the fourth quarter of 2014, on revenue of $87.28 billion. As a result, the Exxon stock actually fell in early-morning trade, to $75/share from $76.27, which is where it closed on 1 Feb 2016.
Still, Exxon's numbers were a rare bit of sunshine in an oil patch that has been bleeding cash ever since the oil boom busted in 2014. Contrast the Exxon numbers with those of rival Chevron (NYSE:CVX), which reported a loss of $588 million leading to steep cuts in its capital spending. Exxon Mobil stands alone.
As I wrote in my Exxon earnings preview, these numbers matter less to oil investors than Exxon’s decision on where, how, and when to start making acquisitions. Even the strongest exploration and production players, like Pioneer Natural Resources (NYSE:PXD), are showing steep losses for 2015, while smaller players like Sanchez Energy (NYSE:SN) seem headed toward bankruptcy, losing many times more money than they are taking in and having all their assets under debt that may prove impossible to repay.
Yet still, Exxon Mobil husbands its cash. Exxon cut its capital budget 29% year-over-year, and while it managed to earn twice as much, ($32.520 billion) as it paid out in dividends and buybacks ($15.1 billion), it has yet to strike in the acquisition market.
What made Exxon Mobil different from Chevron was the mix of revenue. For the full year Exxon lost $1.1 billion on “upstream” operations, the actual production of oil and gas, but more than offset this by earning $6.6 billion in “downstream” operations, creating and selling refined products.
Exxon Mobil also benefits from a global downstream footprint, as $4.7 billion of those downstream earnings were outside the U.S. Those profits are hurt as they are transferred into dollars, but the gusher is so large, that hardly matters.
Exxon's positive numbers, and the market’s muted reaction to them, are indications of just how out of favor fossil fuels are at the moment. But that could turn, on a dime, a single bomb (god forbid) could do it. So, Exxon Mobil should remain under consideration as a defensive play in a model portfolio. Because when the price of oil finally does go up, or the bankruptcy judge comes hunting for distressed assets in Texas and North Dakota, this giant is going to feed.