Shares of Exxon Mobil (XOM) rose 0.5% in Thursday's trading session, thereby underperforming the wider equity markets which rallied hard. The integrated energy company reported its third quarter results.
Third Quarter Results
Exxon Mobil reported third quarter revenues of $115.7 billion, down 7.7% on the year. Revenues beat analysts consensus of $112.4 billion
The company reported a 7.4% decline in net income to $9.57 billion. Diluted earnings per share fell merely 2% to $2.09 on the result of sizable share buybacks. Earnings comfortably beat analysts consensus of $1.95 per share.
Oil production fell by 7.5% compared to the third quarter last year. Excluding the impact of entitlement volumes, quota effects and divestments, volumes were down 2.9%. Exxon produced an average of 3.96 million barrels of oil-equivalent per day during the quarter.
Exxon made some selective acquisitions in North America recently. In September, the company acquired 100% of Denbury's Bakken shale assets with expected production of 15,000 barrels per day, and many acres of land to explore. Another deal was the $2.7 billion acquisition of Canadian Celtic Exploration Company, announced during the quarter.
During the quarter, Exxon Mobil repurchased 58 million shares for a total consideration of $5.1 billion. Year to date, the company has repurchased shares for a total of $15.8 billion.
CEO and Chairman Rex W. Tillerson commented on the results, "Third quarter results reflect our ongoing commitment to help deliver the energy needed to underpin economic recovery and growth while maintaining our strong focus on safety and environmental performance."
Exploration and production earnings came in at $6.0 billion, compared to $8.4 billion last year. Lower production volumes and an unfavorable mix reduced earnings by some $700 million. Absence of assets sales and the impact of a strong dollar impacted earnings by another $1.6 billion. Liquids production fell to 2.12 million barrels per day. Third quarter natural gas production fell to 11.06 millions of cubic feet per day.
Earnings from the downstream operations doubled to $3.2 billion in a very favorable environment for refiners. Higher refining margins boosted profitability, while volumes and the product mix was largely unchanged. Proceeds from asset sales were $360 million higher on the year. Petroleum sales came in at 6.1 million barrels per day, while refinery throughput volumes totaled 4.9 million barrels.
Earnings from the chemical division came in at $790 million, down from $1 billion last year. Lower margins and unfavorable exchange rates explained the decrease in profitability.
Exxon Mobil ended its third quarter with $13.3 billion in cash and equivalents. The company operates with $12.4 billion in short and long term debt, for a net cash position approaching $1 billion.
For the first nine months of 2012, Exxon Mobil reported revenues of $367.1 billion. The company reported a net income of $34.9 billion, or $7.50 per diluted share. Full year revenues could come in around $485 billion. Annual earnings could total $46-$47 billion.
The market currently values Exxon Mobil at $423 billion. This values the firm at 0.9 times annual revenues and roughly 9 times annual earnings
Exxon Mobil currently pays a quarterly dividend of $0.57 per share, for an annual dividend yield of 2.5%.
Year to date, shares of Exxon Mobil have risen some 8%. Shares started the year around $85 per share and hit lows of $77 in June. Shares recovered and are currently trading at $91.60 per share, around the year highs.
Over the past five years, shares are trading unchanged. Shares fell from $95 in 2008 to lows of $55 in 2010. Over the time period, Exxon modestly grew annual revenues from $460 billion in 2008, to an estimated $485 billion this year. Earnings are expected to rise modestly from $45 billion in 2008 to $46-$47 billion this year. The company did repurchase roughly 10% of its total shares outstanding over the past five years.
Shares of Exxon Mobil have been stagnating for years, and it is easy to understand why. Exxon has been struggling to maintain, let alone grow, its production over the past years. At the same time, the company pays a dividend yield of "just" 2.5%, which is rather low compared to many other global integrated energy companies. As such, the company is neither a high-dividend energy stock, nor does it offer much growth potential.
On the bright side, the company is debt free which gives the company a lot of freedom to make medium or large acquisitions. In recent months, Exxon announced a couple of interesting deals. Furthermore there is sufficient capital to boost payouts to shareholders. Another positive sign is the increase in share repurchase activity, totaling $15.8 billion for the first nine months of the year. At this rate, the company is retiring 5% of its shares outstanding per annum.
Shares of Exxon Mobil are an excellent addition to any long term diversified portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.