Skip to Content
Stock Analyst Update

Exxon Takes Hit on Noncash Charges, Worst Still to Come

After a drop in earnings in the first quarter, we view this narrow-moat firm's shares as appealing.


Exxon (XOM) reported a first-quarter loss of $610 million compared with earnings of $2.4 billion last year. First-quarter earnings included $2.9 billion in noncash charges, largely from inventory valuation effects, but also asset impairment charges. Operating cash flow, including asset sales, was $6.4 billion compared with $8.4 billion last year. Upstream earnings fell to $536 million from $2.9 billion last year due to lower commodity prices, which offset a 2% growth in production driven by a 7% increase in liquids volumes. Excluding entitlement effects and divestments, production rose 5% with liquids 9% higher, led by growth in the Permian and Guyana. Upstream adjusted earnings fell to $1.2 billion from $2.2 billion last year. Downstream earnings fell to a loss of $611 million from a loss of $256 million last year as positive derivative effects and lower expenses were offset by noncash inventory valuation and impairment charges. The reported figures obscure the strength of the downstream which, without the inventory valuation charges, would have reported a year-over-year increase in adjusted earnings to $1.3 billion from $900 million last year. Chemical earnings fell to $144 million from $518 million, largely on noncash inventory valuation. Adjusted chemical earnings increased to $466 million from a loss of $355 million last year, marking its best quarter since first-quarter 2019. Our fair value estimate and moat rating are unchanged.

Although Exxon performed well during the quarter the worst is yet to come with CEO Darren Woods indicating April likely marked a trough in demand, but commodity prices and demand remain weak with the path of recovery uncertain. Exxon will also see economic shut-ins and curtailments of 400 thousand barrels of oil equivalent per day, or mboe/d, during the second quarter. We continue to view the dividend as safe, however, in light of Shell’s earlier decision to cut their payout. 

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Allen Good does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.