Exxon Mobil Corporation (NYSE:XOM) headed into its second-quarter earnings report Friday morning stuck in a rut. At Thursday’s close of $81, XOM stock traded near a 52-week low. And a 10%-plus decline so far in 2017 made Exxon stock the third-worst performer in the Dow Jones Industrial Average, besting only General Electric Company (NYSE:GE) and International Business Machines Corp. (NYSE:IBM).
The Exxon Mobil earnings report isn’t going to change that trajectory. XOM stock is down 2% in early morning trading after missing consensus estimates on the bottom line.
Revenue was better than expected, and Exxon Mobil earnings per share nearly doubled year-over-year. But Exxon faced an easy comparison against a poor performance in Q2 2016, and the modest sales beat isn’t enough to boost optimism.
Exxon has looked like dead money for some time. XOM stock needs more than just higher oil prices to change that problem. And it doesn’t look like Q2 earnings will be nearly enough to change that fact.
Exxon Mobil Q2 Earnings
Certainly, Exxon Mobil earnings weren’t terrible. Revenue rose 9.8% to nearly $63 billion, beating Street estimates by almost $1 billion. Per-share earnings of 78 cents increased 90% year-over-year, completing a first half in which net income jumped a whopping 110%. But, again, Exxon Mobil’s first half last year was one of the roughest periods in the company’s history, and Q2 earnings missed expectations by six cents per share.
Expectations aside, Exxon Mobil did make some progress in the quarter. Total upstream segment earnings quadrupled, thanks to higher oil-and-gas prices. Refinery spreads increased as well, driving a 68% increase in the downstream business. Chemical segment profits declined 19% due to those same higher oil prices, an effect of the internal hedging with the current Exxon Mobil business. (Higher oil prices are good for upstream, and usually the refining business, as it increases per-gallon margins. But lower oil prices reduce input costs for the chemical businesses.)
Meanwhile, Exxon Mobil officially is going forward with development in the massive Guyana Liza field, which should start production in 2020. And the first well was spud in the massive Delaware Basin acreage the company acquired back in January. But in the meantime, production still decreased a percent on an oil-equivalent basis year-over-year, with liquids production declining.
It’s not a terrible quarter. But it’s not going to be enough to get XOM stock moving.
XOM Stock Should Stay Stuck
The problem for Exxon Mobil is that it’s not clear what can get it going. Higher oil prices would help. But investors betting on higher energy prices have many better stocks to buy. A 3.9% dividend yield helps, but isn’t on its own enough reason to buy XOM stock.
There are a number of reasons XOM stock remains range bound. Oil prices flounder under $50 a barrel, and any boost in those prices would help Exxon Mobil less than other oil companies (due to its chemical and downstream segments). Fellow major Chevron Corporation (NYSE:CVX), who also posted an earnings miss this morning, has the same problem.
Production is flat. The dividend isn’t growing nearly as fast as it used to.
And XOM stock still isn’t that cheap, trading at roughly 20x 2017 EPS estimates. Add it all up, and it’s tough to be too optimistic on Exxon Mobil stock. Second-quarter earnings aren’t nearly enough to change that.
As of this writing, Vince Martin has no positions in any securities mentioned.
