Diversified oil giant Exxon Mobil (XOM) reported weak third quarter results Thursday morning. The firm saw revenue decline 7% year-over-year to $115.7 billion, which was slightly better than consensus expectations. Earnings per share fell just 2% year-over-year to $2.09, which also exceeded consensus estimates. For a read on how we calculate the intrinsic value of Exxon Mobil, please click here.
Exxon's third quarter reflected the divergence between E&P (exploration & production) versus downstream refining. However, unlike ConocoPhillips (COP), which spun-off Phillips 66 (PSX), Exxon owns both businesses, thus allowing this quarter's weakness in E&P to be offset by downstream operations. E&P (also known as upstream) earnings fell 29% year-over-year to $5.9 billion due to waning oil and gas production, which fell 7.5%. Chemical earnings were also relatively weak, declining 21% year-over-year to $790 million. Declining margins were the main culprit, but chemicals remain a relatively small portion of the profit mix at the firm. As we stated earlier, a sizeable portion of this decline was offset by improved refinery profits, which more than doubled year-over-year to $3 billion. The company cited cheap grade oil from shale properties in the US and Canada as major refinery profit drivers.
Almost as important as current operations, Exxon continues to acquire new unconventional oil assets. The firm acquired 100% of Denbury Onshore's Bakken shale assets in North Dakota and Montana for $1.6 billion, and it also acquired Celtic Exploration in Canada for $2.64 billion. Though crude and natural gas prices remain relatively weak, we like the acquisitions of unconventional assets in stable regions for the long haul. Given the firm's ability to generate large amounts of cash and strong financial business, the company remains well-positioned to monetize its new assets.
In addition to some solid acquisitions, Exxon continues to deliver cash to shareholders via share repurchases and dividends. After generating $14 billion via operations and asset sales, the firm repurchased $5 billion worth of stock and paid out dividends of $0.57 per share, 21% more than during the same period of 2011. Still, we think shares look a bit rich at current levels, though we think the company's dividend growth potential remains incredibly strong. We'd need to see a fairly sizable pullback before getting interested in shares for the portfolio of our Dividend Growth Newsletter. Please click here for stocks that we find attractive from a dividend growth perspective.
Additional disclosure: COP and PSX are included in our Dividend Growth Newsletter.