Exxon Mobil’s Q4 Earnings Outlook: Challenges Ahead from Lower Oil Prices
Exxon Mobil Corp. recently painted a less-than-rosy picture for its fourth-quarter earnings, warning investors that both lower oil prices and tightening refining margins are expected to weigh heavily on its profitability. Following this announcement, Exxon’s stock experienced a decline of 1.4%, reflecting market concerns over the oil giant’s revenue potential amidst a challenging economic backdrop.
Key Factors Affecting Earnings
Oil prices, particularly those measured by the U.S. West Texas Intermediate (WTI) benchmark, plummeted approximately 6.5% during the fourth quarter. This decline is largely attributed to an ongoing oil glut coupled with apprehensions about a potential slowdown in China’s economy, which significantly influences global oil demand.
Exxon did note some resilience in its upstream segment, highlighting stronger gasoline prices that could partially offset the downturn. However, they also cautioned that lower liquids prices might lead to reduced upstream earnings by between $500 million to $900 million compared to the previous quarter.
Third-Quarter Performance and Expectations
To provide context, Exxon achieved a net income of $8.6 billion in the third quarter, with $6.2 billion of that stemming from upstream activities. Analysts expect fluctuations in natural gas prices to potentially increase earnings by as much as $400 million. Yet, Exxon’s estimates are tempered by anticipated declines in margins across its energy products and chemical divisions.
More specifically, the company foresees that shifts in industry margins will reduce earnings from its energy products business by $300 million to $700 million, and its chemical products sector could see a similar dip ranging from $300 million to $500 million. Additionally, timing effects are projected to further slash energy product earnings by $500 million to $900 million.
Consensus Forecast and Analyst Revisions
Exxon is scheduled to report its fourth-quarter earnings on January 31. The FactSet consensus estimate aligns at $1.73 per share with anticipated revenues of $85.260 billion. Notably, analysts at Mizuho have adjusted their earnings per share (EPS) projections significantly downwards, calculating a range of $1.03 to $1.88—about 18% below their prior forecast of $1.79. In parallel, analysts led by Nitin Kumar reduced their EPS estimates by 13% to $1.55.
JPMorgan contributes to the discourse by suggesting a potential EPS range of $1.04 to $1.99. Some analysts, including John M. Royall, mention that Exxon is historically inclined to report mildly above the midpoint of their estimates, which could lead to EPS arriving closer to $1.55 when adjusted for various one-time items like divestments and tax-related adjustments.
Recent Strategic Moves and Market Positioning
Exxon’s third-quarter results were notably augmented due to its acquisition of Pioneer Natural Resources, a deal valued at over $60 billion that significantly strengthens Exxon’s footing in the Permian Basin in West Texas. However, this acquisition’s potential benefits might be mitigated given the current challenges in oil pricing and market dynamics.
Interestingly, Exxon’s warning echoes a similar sentiment recently expressed by Shell, indicating a broader trend within the industry as both companies navigate the unpredictable tides of the global oil market.
Comparative Market Performance
In light of these developments, it’s worth noting that Exxon’s stock has experienced a 6.4% gain over the past year. While this may seem like a positive, it starkly contrasts with the broader S&P 500 index, which has surged by approximately 24% during the same timeframe. This underperformance is a clear signal for investors to carefully consider their positions in Exxon Mobil as the company braces for potentially turbulent earnings results ahead.
Conclusion
In summary, Exxon’s forecast for its fourth-quarter earnings presents a cautious outlook, with various headwinds including declining oil prices and winnowing margins threatening to undermine profitability. Investors should remain vigilant as the company reports its earnings toward the end of January, paying close attention to the broader implications for the oil sector and the strategic adjustments that Exxon may be compelled to undertake in response to shifting market conditions.
