ExxonMobil (XOM -0.36%) it is the leader of the oil industry by almost every important metric, including profitability. The oil giant produced a profit of $8.6 billion in the third quarter and a monster $17.6 billion in cash flow from operations. which he also drove international oil companies.
However, the fourth quarter proved more challenging for the oil giant that published a profit warning for the period. Here’s a look at whether it’s a concern or investors should buy oil stock on its profit dip.
Drill until the fourth trimester
ExxonMobil recently gave investors a preview of its upcoming fourth-quarter earnings report, which it plans to release at the end of the month. The oil giant expects to report $1.76 per share of earnings in the period, well below analysts’ expectations. It’s also below the $2.48 per share it posted in the year-ago period and the $1.92 per share it earned during the third quarter.
The oil giant battled several headwinds during the period. The biggest is coming refining. Lower margins reduced earnings by between $300 million and $700 million in the period. The timing also impacted its refining business, cutting $500 million to $900 million from the bottom line. Gasoline demand was weaker than expected, while new refineries in Asia and Africa boosted supply.
Another problem that weighed on Exxon’s profits in the period was impairments. The company disclosed that it will incur approximately $600 million in charges during the period. It also expects lower margins in its chemical business to reduce earnings by about $400 million.
These headwinds offset the strength of the company’s oil and gas production activities. Exxon expects earnings from that segment to increase by about $400 million despite a 6% drop in oil prices during the period. Exxon benefited from a rebound of about 30%. price of natural gas in the United States
Time to worry or time to buy?
Market conditions had a notable impact Exxon’s earnings during the fourth quarter. However, while his earnings decreased during the period, he is still in a class of his own. In addition, the company expects to improve its profitability already industry leader in the future.
The company recently revealed its Plan 2030. It aims to deliver an increase of $20 billion in earnings and $30 billion in free cash flow by 2030. Several factors fuel this ambitious plan, including:
- Pioneering natural resources: Exxon expects annual synergies from its recently closed acquisition of Pioneer to be 50% more than originally expected, or about $3 billion.
- New business: : The oil company expects to increase earnings from new businesses (for example, lithium, carbon capture and storage, and others) to $3 billion.
- Structural cost savings: : Exxon adds $7 billion to its structural cost savings target.
- High yield capital investments: : The company plans to spend $140 billion over the next few years major capital projects and the development of the Permian Basin. These investments should generate returns above 30% by increasing their high-margin production from advantageous assets and high-value products.
Exxon’s strategy is on track to generate a massive $165 billion in surplus cash then covers its investment program from 2030. That will give it the money to continue increasing its dividend, which it has done for 42. straight ahead years It will also allow the company to continue buying a boatload of its stock. Assuming reasonable market conditions, it plans to buy back $20 billion of its shares in 2025 and 2026.
This combination of earnings and money– flow increase, along with increased capital returns, positions Exxon to create significant value for investors in the coming years. The company’s strategy will help make it less susceptible to fluctuations in commodity prices by significantly increasing its margins, increasing earnings from more resilient businesses, and delivering sustainable cost savings.
An attractive entry point for this top tier oil stock
Weaker market conditions cut into Exxon’s profits during the fourth quarter. They also weighed on its share price, which currently sits about 15% below its 52-week high. That dip looks like a great buying opportunity for long-term investors, given all the growth the oil giant has in the pipeline.