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Occidental Petroleum Corporation (NYSE:OXY) is an oil & gas production company, which operates in three segments: Oil & Gas, Chemical, and Midstream, Marketing and Other. The company reported earnings before the market opened on 30Jan14 and on the surface everything looked good with the company reporting fourth quarter earnings of $1.72 per share (beating estimates by $0.04) on revenue of $6.18 billion (beating analysts' estimates by $390 million). What I'd like to at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.

Segment Revenue

Segment Sales (millions)

4Q13

4Q12

Y/Y

Oil and Gas

$ 4,953

$ 4,874

2%

Chemical

$ 1,111

$ 1,141

-3%

Midstream, Marketing and Other

$ 374

$ 355

5%

Eliminations

$ (266)

$ (199)

34%

Net sales

$ 6,172

$ 6,171

0%

Compared to last year total revenue has only increased by $1 million. There is nothing really exciting to report in segment revenues. Total fourth quarter production fell by 29,000 barrels from a year ago due to severe weather and plant turnarounds in the Permian operations.

Income Statement

Segment earnings

4Q13

4Q12

Y/Y

Oil and Gas

$ 1,511

$ 522

189%

Chemical

$ 128

$ 180

-29%

Midstream, Marketing and Other

$ 1,098

$ 75

1364%

Total earnings

$ 2,737

$ 777

252%

Interest expense, net

$ (23)

$ (30)

-23%

Income taxes

$ (973)

$(249)

291%

Other

$ (93)

$(134)

-31%

Income from continuing operations

$ 1,648

$ 364

353%

Discontinued operations, net

$ (5)

$ (28)

-82%

Net Income

$ 1,643

$ 336

389%

Non-GAAP oil and gas asset impairments and related items

$ 607

$ 1,731

-65%

Non-GAAP midstream, marketing and other Plains Pipeline sale gain and other

$(1,030)

$ -

N/A

Non-GAAP corporate tax effect of pre-tax adjustments

$ 154

$ (636)

-124%

Non-GAAP litigation reserves

$ -

$ 20

-100%

Non-GAAP corporate discontinued operations, net

$ 5

$ 28

-82%

Non-GAAP net income

$ 1,379

$ 1,479

-7%

Avg. basic outstanding shares

801.7

807.1

-1%

Avg. diluted outstanding shares

802.1

807.7

-1%

Earnings per basic share

$ 1.72

$ 1.83

-6%

Earnings per diluted share

$ 1.72

$ 1.83

-6%

Looking at the income statement at first glance might be a bit unappealing as you look at the bottom lines and notice that earnings decreased by 6% from last year. From a segment earnings perspective, Oil and Gas increased 189% from last year due to improved oil realized prices and higher volumes and lower operating costs. In the Chemicals segment earnings decreased due to higher energy and ethylene costs and lower caustic soda prices. The 1364% increase in Midstream, Marketing and Other was primarily due to the gain on the sale of a portion of the Plains Pipeline investment allowing total earnings to increase a whopping 252%! Net interest expense decreased 23% while income taxes increased 291% and other income decreased 31% all contributing to a 353% increase in income from continuing operations. Earnings from discontinued operations increased 82% making total income increase 389%! Non-GAAP asset impairments and related items in the Oil and Gas segment decreased 65% while non-GAAP midstream, marketing and other earnings increased by $1.03 billion due to the sale of the Plains Pipeline investment. Non-GAAP corporate tax effect of pre-tax adjustments increased 124% and litigation reserves decreased 100%. Finally, non-GAAP corporate discontinued operations decreased 82% making non-GAAP net income decrease a total of 7% from last year. Taking all this into account earnings per share decreased 6% from last year.

Conclusion

The company reported earnings which were 6% lower than a year before on no gain in revenue while the share price was up 5.04% in the past year excluding dividends. The share count has decreased 1% for the entire year. I believe this to be an indication that management thinks the stock price may just be too expensive up here. I definitely don't like that earnings decreased on a year over year basis and that revenue was flat. On a fundamental basis I believe this company is inexpensively valued with respect to 2014 earnings. The stock was up 0.55% the day of reporting earnings in the face of an S&P500 which gained 1.13% that day. Although the company beat analyst estimates the earnings per share were less than last year. I believe the stock would have been down on an average day. I believe I may give this company another quarter before I begin to consider it for replacement.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: Occidental's Earnings Decrease 6%, But Is It A Sell?