Exxon Misses, But Production Up

ExxonMobil Corporation (XOM) reported third quarter 2009 earnings of 98 cents per share, below the Zacks Consensus Estimate of $1.04 and year-earlier earnings of $2.58.

Though the earnings came in below expectations, the company maintained its quarterly dividend of 42 cents per share and repurchased $4 billion worth of XOM common stock. With a sound cash position, solid credit profile and diversity of its asset base, both in terms of business mix as well as geographical footprint, Exxon remains better positioned than any of its peers.

The steep fall in oil prices and weak product margins caused a 65% drop in earnings from the year-earlier quarter to $4.7 billion. The production of oil and natural gas averaged 3.69 million oil-equivalent barrels per day, up approximately 3% year over year. When adjusted for the impact of entitlement volumes and OPEC quota restrictions, production was up about 5%. Its refinery throughput averaged at 5.35 million barrels per day, flat from the year-earlier level.

Total refined product sales of 6.3 million barrels per day were down 5.8% year over year, reflecting the depressed demand environment. Total product sales in the chemicals business increased almost 5% year over year.

Cash flow from operations and asset sales totaled $9.0 billion, down from $17.0 billion in the third quarter of 2008. Capital expenditures totaled $6.5 billion during the quarter, down 5% year-over-year. During the quarter, Exxon entered into a $600 million biofuel project with a leading biotech company.

Exxon remains better positioned - operationally as well as financially - than any other company to navigate the current choppy waters. Its capital discipline, cost controls and operating efficiencies are legendary, to say the least.

The company is well positioned for continued production growth with its prominent projects including QatarGas, RasGas and Gorgon LNG. Exxon’s solid financial strength has allowed it to continue to invest across the economic cycle focusing on world-class opportunities. And instead of investing in a whole host of projects, it has consistently returned the excess cash it generated to shareholders through dividends and share buybacks.

However, we believe that these positives have already been reflected in the current valuation, leaving limited room for above-market gains. We are keeping our Neutral rating unchanged for the stock.

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