Occidental Earnings Increased From Last Year By Good Fortune

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 |  About: Occidental Petroleum Corporation (OXY), Includes: SPY
by: Abba's Aces

Summary

Prices increased from last year to offset a decrease in production volumes.

Revenues and earnings increased from last year.

The stock is inexpensive on 2015 earnings estimates.

The last time I wrote about Occidental Petroleum Corporation (NYSE:OXY) I stated:

"It is for these reasons I will be buying a small batch in the stock right now because I don't think anyone can pick the bottom."

Since that article was published the stock is up 3.79% while the S&P 500 (NYSEARCA:SPY) is up 6.15%. Occidental 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 May 5 and on the surface the results were mixed with the company reporting earnings of $1.75 per share (beating estimates by $0.05) on revenue of $6.08 billion (missing estimates by $130 million). The stock increased 0.3% on the back of earnings against an S&P 500 that gained 0.19% that same day. What I'd like to do 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)

1Q14

4Q13

1Q13

Q/Q

Y/Y

Oil and Gas

$ 4,676

$ 4,953

$ 4,440

-6%

5%

Chemical

$ 1,220

$ 1,111

$ 1,175

10%

4%

Midstream, Marketing and Other

$ 435

$ 374

$ 453

16%

-4%

Eliminations

$ (243)

$ (266)

$ (196)

-9%

24%

Net sales

$ 6,088

$ 6,172

$ 5,872

-1%

4%

Click to enlarge

Compared to last year total revenue has increased by 4%. There is nothing really exciting to report in segment revenues. In the Oil & Gas segment the results were increased due to higher domestic earnings as daily production volumes averaged 745,000 barrels of oil equivalent versus 763,000 from last year.

Income Statement

Segment earnings

1Q14

4Q13

1Q13

Q/Q

Y/Y

Oil and Gas

$ 2,104

$ 1,511

$ 1,920

39%

10%

Chemical

$ 136

$ 128

$ 159

6%

-14%

Midstream, Marketing and Other

$ 170

$ 1,098

$ 215

-85%

-21%

Total earnings

$ 2,410

$ 2,737

$ 2,294

-12%

5%

Interest expense, net

$ 19

$ 23

$ 30

-17%

-37%

Income taxes

$ 932

$ 973

$ 844

-4%

10%

Other

$ 72

$ 93

$ 61

-23%

18%

Income from continuing operations

$ 1,387

$ 1,648

$ 1,359

-16%

2%

Discontinued operations, net

$ 3

$ 5

$ 4

-40%

-25%

Net Income

$ 1,384

$ 1,643

$ 1,355

-16%

2%

Non-GAAP oil and gas asset impairments and related items

$ 607

N/A

N/A

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

$ (1,030)

N/A

N/A

Non-GAAP corporate tax effect of pre-tax adjustments

$ 154

N/A

N/A

Non-GAAP litigation reserves

$ -

N/A

N/A

Non-GAAP corporate discontinued operations, net

$ 5

N/A

N/A

Non-GAAP net income

$ 1,384

$ 1,379

$ 1,355

0%

2%

Avg. diluted outstanding shares

791.7

802.1

805.2

-1%

-2%

Click to enlarge

So after seeing the top line increase by 4% from last year I'd expect the bottom line to increase as well and it sure did. But what I'd like to do is go line by line and see if there were any anomalies. Off the bat I see a 14% reduction in Chemical segment earnings which was due to lower caustic soda prices caused by new chlor-alkali capacity in the industry. The next thing I noticed was the 21% drop in Midstream, Marketing, and Other segment earnings which was caused by lower marketing and trading performance due to the timing of mark-to-market adjustments for trading contracts. Aside from these two lackluster issues, total earnings actually increased 5% because Oil and Gas which accounts for 87% of earnings actually increased by about 10% from last year. A positive is that interest expense decreased by 37%; however, income taxes increased 10% as is to be expected with increasing revenues. Other expenses increased by 18% but it didn't stop income from continuing operations to increase by 2%. Earnings from discontinued operations decreased 25% and left net income at a gain of 2% from last year. After a 2% reduction in share count, investors attained a 4% increase in earnings per share.

Conclusion

The company reported earnings which were 4% higher than a year ago on 4% more revenue while the share price was up 8.49% since the last earnings call excluding dividends. These were pretty good results to me and make me want to buy some more shares of the company before the split. Higher prices in crude oil and natural gas definitely did help the company on the top line as total oil and gas production declined to 745,000 BOE per day compared to 763,000 BOE from last year. There was indeed a dramatic falloff of production in Libya and Yemen which attributed to the lower volumes. The results were good to me but investors seemed to think they were "whatever" as the stock did nothing after reporting. That being said, I think the stock is inexpensively valued and should be accumulated. With these results, the stock is on my team and in the starting lineup.

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!

Disclosure: I am long OXY, SPY. 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.