Earnings from the XOM's U.S. downstream segment were $1,039 million, up significantly from $436 million in the first quarter of 2012. Similarly, chemical earnings of $1,137 million were $436 million higher than the first quarter of 2012.
The refining and chemical results were likely boosted by low-cost domestic crude and natural gas feedstock.
Exxon's results bode well for upcoming earnings reports from Chevron (CVX) and Phillips 66 (PSX). Both companies have significant refining operations. However, the better catalyst may well be Chevron Phillips Chemical Company ("CPChem"), the 50-50 chemical joint venture between Chevron and Phillips 66. As I pointed out in Advantage: Chevron Phillips Chemical Company, CPChem is arguably the best chemical company in the world.
I still like Chevron, which bumped its dividend yesterday to a yearly quarterly rate of $1/share (3.4%), but the best bet may be Phillips 66. PSX has been beaten down from over $70 to $62 and change. The market has treated PSX as though it were any of the other pure refiners. It is not. In 2012, PSX got ~20% of its net earnings via CPChem. In addition, PSX also has a significant midstream operation and will be spinning off its Phillips 66 Partners' (PSXP) MLP later this year.
PSX data by YCharts
- PSX = $62.13
- Mkt Cap = $38.4 billion
- P/E (ttm) = 9.55
- EPS (ttm) = 6.48
- Div (Yield) = $1.25 (2.20%)
I think PSX is a buy at current levels. Earnings are due out on May 1, and you can access the conference call and presentation here. Chevron's earnings are out tomorrow and you can access the conference call and presentation here. Like XOM today, I expect CVX to post good earnings in its refining and chemicals businesses. As a result, Phillips 66 should trade higher going into its earnings release on May. Lower domestic feedstock costs is a fundamental advantage for U.S. refining and chemical companies. Phillips 66 is a great way to profit off these fundamentals.
Additional disclosure: I am an engineer, not a CFA. Please do your own research and contact your investment adviser. I am not responsible for investment decisions you make. Thanks for reading and good luck!