Macroeconomic Headwinds Weigh on Exxon
The narrow-moat firm's earnings and cash flow have been affected, but our fair value estimate is unchanged.
Exxon (XOM) reported fourth-quarter earnings that continue to reflect the macroeconomic headwinds the company is facing across all parts of its business, which are weighing on earnings and cash flow. Our narrow moat and fair value estimate are unchanged. Fourth-quarter adjusted earnings fell to $1.8 billion from $5.2 billion last year, and full-year 2019 adjusted earnings dropped to $9.6 billion from $19.1 billion last year.
Upstream adjusted earnings in the fourth quarter slid to $2.2 billion from $3.7 billion last year as lower natural gas prices, along with higher growth-related expenses and the absence of one-time items, more than offset 5% growth in volumes and higher liquids-price realizations. Downstream adjusted earnings for the quarter fell to $898 million from $1.8 billion last year on narrower differentials, lower refining margins and higher-than-scheduled maintenance. The chemicals segment had to contend with an adjusted operating loss of $355 million this quarter compared with adjusted earnings of $525 million the year before, primarily on weaker margins as overcapacity and economic softness continue to weigh on the sector.
Cash flow from operations and asset sales, excluding working capital of $11.1 billion for the quarter compared with $10.8 billion last year, brings the full-year total to $32.5 billion in 2019, down from $41.5 billion in 2018. Integrated models usually enjoy countercyclical benefits in a variety of environments that have all been negated as a result of the difficult macroeconomic environment. Earnings have been depressed by weaker commodity prices alongside lower refining and chemical margins. The company continues to target $15 billion in asset sale proceeds through 2021 however, which should buffer operating cash flow and keep the dividend safe until commodity prices improve to midcycle levels and new projects come online. Capital and exploration expenditures were $8.5 billion, including key investments in the Permian Basin.
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Allen Good does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.