At Exxon and Chevron, market weakness trumps headline beats

At Exxon and Chevron, market weakness trumps headline beats

The two giants beat Q2 profit expectations but that wasn’t enough for the stocks

Shares of Exxon Mobil Corp. and Chevron Corp. on Friday enjoyed only a short-lived boost from their headline earnings beat, as some on Wall Street worried about their cash positions amid broader equity-market weakness.

Exxon XOM, -0.98% and Chevron CVX, -0.01% shares were lower alongside the energy subsector and main equity indexes after the July jobs report showed slowing job growth and investors continued to worry about additional China tariffs. Exxon’s stock reversed an earlier gain of as much as 1.1%, while Chevron shares were up 1.5% at their intraday high.

Both energy giants reported earnings earlier Friday. Exxon said it earned 73 cents a share on sales of $69 billion; the FactSet consensus called for earnings of 66 cents a share on sales of $64 billion.

At Chevron, the results were mixed: the company earned $2.28 a share on sales of $39 billion versus expectations of earnings of $1.76 a share on sales of $40 billion.

Analysts at Tudor Pickering Holt zeroed in on Exxon’s operating earnings, which missed Wall Street expectations coming at 61 cents a share vs. expectations of 65 cents a share. Cash flow of $6 billion was similarly below the Street forecast of about $7.4 billion, they said.

Exxon beat production expectations with both liquids and natural gas “surprising to the upside,” particularly in the U.S., analysts at Goldman Sachs said.

Analysts at Raymond James called out Exxon’s “decade-low chemical earnings,” a further drop from already weak levels in the first quarter, they said.

It is also worth underscoring that “weakness in chemicals looks more structural rather than a one-off, bearing in mind the industry’s massive capacity buildout, especially on the Gulf Coast,” the Raymond James analysts said.

Chevron’s earnings beat was driven by its downstream, particularly international downstream given improved margins, the analysts at Goldman Sachs said.

Chevron’s adjusted net income expectations, “unusually in the context of the (international oil companies) this quarter,” had not been dialed down, analysts at Citi said. Chevron’s upstream business saw weak gas prices across both in the U.S. and abroad, but that was offset by high-margin growth in liquids in Texas’s Permian basin, the Citi analysts said.

“The current market obsession with oil-sector (free cash flow), dividends and buybacks plays well to (Chevron’s) strengths,” they said. “But at the same time the notion of underlying growth – the message that returns to shareholders is not coming at the expense of future growth – we think acts as a real point of differentiation on [Chevron] versus peers.”

Exxon and Chevron shares have gained about 5% and 10% this year, respectively, compared with gains of 17% for the S&P 500 index SPX, -0.73% and 13% for the Dow Jones Industrial Average. DJIA, -0.37%

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