Exxon Vs. Chevron: Cash-Flow Statements Are Stretched Like Bungee Cords

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Includes: CVX, ERX, ERY, HAL, OIH, VDE, XLE, XOM
by: Brian Gilmartin, CFA

Summary

The cash-flow statement analysis is unsettling.

Chevron is more oversold and trading at 6(x) cash-flow.

Exxon is still free-cash-flow positive.

Typically we limit our writing to earnings previews and earnings reviews for companies in client portfolios, but recently, while updating the spreadsheets of Exxon-Mobil (NYSE:XOM) and Chevron (NYSE:CVX), the cash-flow statements caught our eye.

Exxon's Cash-flow statement:

Cash-flow analysis 12/31/2013 9/30/2013 6/30/2013 3/31/2013 12/31/2012 9/30/2012 30-Jun-12 31-Mar-12 31-Dec-11 30-Sep-11 30-Jun-11 31-Mar-11 31-Dec-10
Cash from operations $10,208 $13,431 $7,683 $13,592 $13,224 13,442 $10,217 $19,287 $10,751 $14,849 $12,889 $16,856 $13,055
Cash from investing activities ($6,712) ($8,942) ($8,493) ($10,054) ($9,042) (7,492) $3,756 $5,351 $2,012 $4,296 $10,504 $5,353 $7,080
Cash from financing activities ($4,178) ($3,889) ($715) ($6,694) ($7,725) (10,860) $7,153 $8,130 $7,045 $7,397 $7,065 $6,749 $10,430
Net change in cash $682 $600 $1,525 $3,156 $3,543 $4,910 $692 $5,806 $1,694 $3,156 $4,680 $4,754 $4,455

Cash from operations

$10,208 $13,431 $7,683 $13,592 $13,224 $13,442 $10,217 $19,287 $10,751 $14,849 $12,889 $16,856 $13,055
Capex $8,426 $9,098 $4,370 $11,775 $10,057 $8,026 $8,345 $8,834 $8,135 $8,135 $8,135 $8,135 $7,743
Free-cash-flow $1,782 $4,333 $3,313 $1,817 $3,167 $5,416 $1,872 $10,453 $2,616 $6,714 $4,754 $8,721 $5,312
4q trailing cash-flow $44,914 $47,930 $47,941 $50,475 $56,170 $53,697 $55,104 $57,776 $55,345 $57,649 $55,877 $52,223 $48,413
y/y growth -20% -11% -13% -13% 1% -7% -1% 11% 14% 31% 41% 60% 70%
4q trailing capex $33,669 $35,300 $34,228 $38,203 $35,262 $33,340 $33,449 $33,239 $32,540 $32,148 $31,756 $31,364 $30,972
y/y growth -5% 6% 2% 15% 8% 4% 5% 6% 5% 11% 19% 27% 38%
capex as % of revenues 8% 8% 8% 8% 7% 7% 7% 7% 7% 7% 7% 8% 8%
Capex as % of CFO 75% 74% 71% 76% 63% 62% 61% 58% 59% 56% 57% 60% 64%
4q trailing free-cash-flow $11,245 $12,630 $13,713 $12,272 $20,908 $20,357 $21,655 $24,537 $22,805 $25,501 $24,121 $20,859 $17,441
y/y growth -46% -38% -37% -50% -8% -20% -10% 18% 31% 70% 87% 162% 193%
FCF yield 3% 3% 3% 3% 5% 5% 5%
dividend paid $2,750 $2,585 $2,874 $2,666 $2,592 $2,500 $2,500 $2,500 $2,246 $2,258 $2,258 $2,258 $2,124
shares repurchased ($'s) $3,302 $3,044 $4,031 $5,621 $5,255 $5,271 $5,271 $5,271 $5,723 $5,444 $5,444 $5,444 $3,273
Total capital returned $6,052 $5,629 $6,905 $8,287 $7,847 $7,771 $7,771 $7,771 $7,969 $7,702 $7,702 $7,702 $5,397

4q trailing dividend

$10,875 $10,717 $10,632 $10,258 $10,092 $9,746 $9,504 $9,262 $9,020 $8,898 $8,764 $8,630 $8,496
4q trailing share repo $15,998 $17,951 $20,178 $21,418 $21,068 $21,536 $21,709 $21,882 $22,055 $19,605 $17,434 $15,263 $13,092
4q trailing capital allocated $26,873 $28,668 $30,810 $31,676 $31,160 $31,282 $31,213 $31,144 $31,075 $28,503 $26,198 $23,893 $21,588

As % of free-cash-flow

Dividends 97% 85% 78% 84% 48% 48% 44% 38% 40% 35% 36% 41% 49%
repurchases 142% 142% 147% 175% 101% 106% 100% 89% 97% 77% 72% 73% 75%
Total 239% 227% 225% 258% 149% 154% 144% 127% 136% 112% 109% 115% 124%
Click to enlarge

The big item that jumps out at us from an analysis of XOM's statement of cash-flow, is that dividends are currently consuming almost 100% of XOM's free-cash.

In terms of XOM's total free-cash-flow generated, the capital being returned is currently 239% of free-cash-flow, which is unsustainable over the long run. Basically XOM is paying out more free-cash than they generate, which is hard to do for a long period of time.

XOM has returned between $5 - $8 bl per quarter in terms of dividends and share repurchases to shareholders, but free-cash-flow generation per quarter has steadily declined.

The other thing that surprised me is that with a $347 billion balance sheet (in terms of total assets) XOM's total long-term debt amounts to just $7 billion.

XOM could borrow or lever up the balance sheet with just a 2% debt-to-cap ratio, and shareholders wouldn't blink.

Let's look at Chevron :

Cash-flow analysis 12/31/2013 9/30/2013 6/30/2013 3/31/2013 12/31/2012 9/30/2012 30-Jun-12 31-Mar-12 31-Dec-11 30-Sep-11 30-Jun-11 31-Mar-11 31-Dec-10 30-Sep-10
Cash from operations $10,452 $10,316 $8,520 $5,714 $12,780 $7,730 $9,915 $8,387 $9,072 $11,522 $10,690 $9,814 $8,257 $7,982
Cash from investing activities ($9,831) ($9,307) ($8,012) ($8,459) ($10,075) ($7,242) $5,506 $1,973 $5,008 $6,060 $8,074 $8,347 $4,024 $5,307
Cash from financing activities ($1,263) ($4,594) $2,841 ($805) ($3,090) ($464) $1,965 $3,461 $2,379 $4,509 $2,459 $2,425 $1,200 $1,246
Net change in cash $642 $3,585 $3,349 $3,550 $385 $24 $2,444 $2,953 $1,685 $953 $157 $958 $3,033 $1,429
Cash from operations $10,452 $10,316 $8,520 $5,714 $12,780 $7,730 $9,915 $8,387 $9,072 $11,522 $10,690 $9,814 $8,257 $7,982
Capex ($11,613) ($9,607) ($8,573) ($8,192) ($9,946) ($7,490) $7,067 $5,895 $7,307 $6,775 $7,773 $4,645 $5,504 $5,589
Free-cash-flow $1,161 $709 $53 $2,478 $2,834 $240 $2,848 $2,492 $1,765 $4,747 $2,917 $5,169 $2,753 $2,393
4q trailing cash from operations $35,002 $37,330 $34,744 $36,139 $38,812 $35,104 $38,896 $39,671 $41,098 $40,283 $36,743 $33,656 $31,359 $30,122
y/y growth -10% 6% -11% -9% -6% -13% 6% 18% 31% 34% 28% 37% 62%
4q trailing free-cash-flow $2,983 $1,012 $543 $3,444 $8,414 $7,345 $11,852 $11,921 $14,598 $15,586 $13,232 $13,366 $11,747 $16,643
y/y growth -135% -86% -95% -71% -42% -53% -10% -11% 24% -6%
4q trailing capex $37,985 $36,318 $34,201 $32,695 $30,398 $27,759 $27,044 $27,750 $26,500 $24,697 $23,511 $20,290 $19,612 $13,479
y/y growth 25% 31% 26% 18% 15% 12% 15% 37% 35% 83%
capex as % of revenues 17% 16% 15% 14% 13% 12% 11% 11% 10% 10% 10% 9%
Capex as % of cash-flow 109% 97% 98% 90% 78% 79% 70% 70% 64% 61% 64% 60%

dividend

$1,903 $1,915 $1,921 $1,735 $1,700 $1,700 $1,700 $1,700 $1,534 $1,534 $1,534 $1,534 $1,418 $1,418
share repurchases $1,188 $1,278 $1,001 $1,027 $987 $987 $987 $987 $799 $799 $799 $799 $75 $75
Total capital returned $3,091 $3,193 $2,922 $2,762 $2,687 $2,687 $2,687 $2,687 $2,333 $2,333 $2,333 $2,333 $1,493 $1,493

4q trailing dividend

$7,474 $7,271 $7,056 $6,835 $6,800 $6,634 $6,468 $6,302 $6,136 $6,020 $5,904 $5,788 $5,672
4q trail share repo $4,494 $4,293 $4,002 $3,988 $3,948 $3,760 $3,572 $3,384 $3,196 $2,472 $1,748 $1,024 $300
4q trailing capital returned -104% 316% 538% 80% 32% 37% 23% 23% 16% 15% 18% 17% 13% 9%
Click to enlarge

Chevron returns about $2 - $3 bl per quarter of capital to shareholders in the form of dividends and share repurchases, but free-cash-flow has been negative 3 of the last 4 quarters and is way down from the $3 - $5 bl per quarter that CVX can generate.

CVX has $253 billion in assets, $20 billion in long-term debt and an 8% debt-to-cap ratio.

So what is the point to the analysis?

I worry about the integrated international oil companies like XOM and CVX. We've been underweight energy for some time in client portfolios simply because we think that the continued growth of hybrid and electric cars will continue to diminish demand for gasoline; from what I know about the sector, gasoline distillation accounts for about 50% of crude oil production.

Just from my own simple analysis, XOM and CVX have to either lever up with debt to continue to fund the dividend and share repo, or hope the price of crude oil increases 20% to stem the bleeding in the downstream businesses.

All this being said, we are not big energy investors, per se, and stick to the large-cap integrated oil's and oil service companies when we do have positions, like a small position in Halliburton Company (NYSE:HAL) currently.

Technically Chevron is more oversold than Exxon, and trading at 6x cash-flow, while XOM trades at 9x cash-flow, so of the two, if I had to pick one, Id be long CVX, but we have no positions currently.

I wrote this simply because I find what is going with integrated oil's statement of cash-flow statements fascinating; I've never seen this before.

The statement of cash-flow is where the balance sheet and income statement come together in one statement, and is the basis for a lot of our company analysis.

It will be interesting how this plays out. CVX and XOM can either cut capex, reduce share repo's, reduce dividends (which is the most unlikely) or lever up and use debt to finance the return of capital to shareholders.

Disclosure: I am long HAL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.