Morningstar

Macroeconomic Headwinds Weigh on Exxon

The narrow-moat firm's earnings and cash flow have been affected, but our fair value estimate is unchanged.

Securities In This Article
Exxon Mobil Corp
(XOM)

Exxon XOM reported fourth-quarter earnings that continue to reflect the macroeconomic headwinds the company is facing across all parts of its business, which are weighing on earnings and cash flow. Our narrow moat and fair value estimate are unchanged. Fourth-quarter adjusted earnings fell to $1.8 billion from $5.2 billion last year, and full-year 2019 adjusted earnings dropped to $9.6 billion from $19.1 billion last year.

Upstream adjusted earnings in the fourth quarter slid to $2.2 billion from $3.7 billion last year as lower natural gas prices, along with higher growth-related expenses and the absence of one-time items, more than offset 5% growth in volumes and higher liquids-price realizations. Downstream adjusted earnings for the quarter fell to $898 million from $1.8 billion last year on narrower differentials, lower refining margins and higher-than-scheduled maintenance. The chemicals segment had to contend with an adjusted operating loss of $355 million this quarter compared with adjusted earnings of $525 million the year before, primarily on weaker margins as overcapacity and economic softness continue to weigh on the sector.

Cash flow from operations and asset sales, excluding working capital of $11.1 billion for the quarter compared with $10.8 billion last year, brings the full-year total to $32.5 billion in 2019, down from $41.5 billion in 2018. Integrated models usually enjoy countercyclical benefits in a variety of environments that have all been negated as a result of the difficult macroeconomic environment. Earnings have been depressed by weaker commodity prices alongside lower refining and chemical margins. The company continues to target $15 billion in asset sale proceeds through 2021 however, which should buffer operating cash flow and keep the dividend safe until commodity prices improve to midcycle levels and new projects come online. Capital and exploration expenditures were $8.5 billion, including key investments in the Permian Basin.

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About the Author

Allen Good, CFA

Director
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Allen Good, CFA, is a director, Europe, for Morningstar*. Based in Amsterdam, he covers the oil and gas industries as well as manages a team of multi-industry analysts. He is also chair of the Morningstar Research Services Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat ratings issued by Morningstar. In this role, he is responsible for ensuring consistent application of Morningstar’s Economic Moat methodology across sectors and regions as well as updating and revising the methodology. His specialty is global integrated oils such as Exxon, Chevron and Shell and US independent refiners such as Valero and Marathon Petroleum. He also contributes to developing hydrocarbon price and petroleum product margin forecasts used in valuation models.

Before joining Morningstar in 2008, He performed merger and acquisition advisory work for a middle-market investment bank. Before that, he spent several years at Black & Decker in various operational roles, primarily focused on manufacturing and distribution.

Good holds a bachelor’s degree in business from the University of Tennessee and a master’s degree in business administration from Kenan-Flagler Business School at the University of North Carolina. He also holds the Chartered Financial Analyst® designation.

* Morningstar Holland BV (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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