Exxon meets earnings expectations

Exxon Mobil Corp outperformed Wall Street earnings estimates on Friday with its first profit in five quarters, helped by higher oil prices and strong chemical margins. Exxon (NYSE: XOM) and its competitors' earnings have soared this year, with crude oil prices up a third this year as a global oil surplus expires through the pandemic and fuel demand rebounds. The momentum into profit is coming as European rivals also achieved results that exceeded pre-pandemic levels. Quarterly results show that by cutting costs deeply, Exxon was able to break last year's historic annual loss and generate strong cash flow needed to deleverage. Exxon is fighting with a hedge fund for board seats and its focus on fossil fuels. Net income was $ 2.73 billion, or 64 cents per share, for the first quarter, compared to a loss of $ 610 million, or 14 cents per share, a year earlier. Adjusted earnings of 65 cents per share exceeded analysts' expectations of 59 cents, according to data from Refinitiv IBES. The improving economy is helping to boost product demand, said Chief Executive Darren Woods in a conference call with analysts. "Thanks to our efforts over the past few years, we are a stronger company with an improved outlook," said Woods. Chemicals earnings were the largest contributor to first quarter results, with earnings nearly ten times higher than last year and the strongest in at least five years. This business has skyrocketed due to high prices and demand for plastics. Exxon's profound cost reductions also contributed to earnings. Exxon's capital spending fell to $ 3.1 billion, its lowest level in nearly two decades. The spending cuts helped boost cash flow to $ 9.3 billion, the highest since 2018. When the company set its spending plans in November, it was "difficult to say what this year would be like," Woods said in an interview. "We tended to postpone the plan as we realized that the economic recovery we expected would materialize later in 2021 and gain momentum in the second and third quarters," said Woods. He still expects spending on new projects to be near the lower end of the estimates of $ 16 billion to $ 19 billion, he said. The Irving, Texas-based company saved $ 8 billion in operating costs last year and promised to cut operating expenses by an additional $ 3 billion through 2023. Shares, which are up 35% since January, fell 1.7% to $ 57.96 on Friday alongside oil prices and other oil and gas companies. Exxon used cash flow for its expenses and dividend for the first time since the third quarter of 2018. Net debt fell for the first time in several quarters, said analyst Biraj Borkhataria of RBC Europe Limited. But the free cash flow rate of return, which is estimated at 9% for this year, "remains well below that of the competition even in a bullish macro scenario," said Borkhataria. Exploration and Production, Exxon's largest business, earned $ 2.6 billion in the first quarter due to higher oil prices, compared to a profit of $ 536 million a year earlier. The chemicals business had its best quarter since at least 2012, making $ 1.4 billion on better margins, compared to a profit of $ 144 million a year ago. Exxon's chemicals business was once a profit engine but stalled before the pandemic. The company appears to be "getting the ship back in order," said Peter McNally, an analyst with the Third Bridge Group. Refining lost $ 390 million compared to a loss of $ 611 million last year due to the impact of winter storm shutdowns and fuel demand. With product sales down 8% year over year, Exxon "needs a volume spike to get some sort of profit recovery" at the refinery, McNally said.