Dollar Strength Wreaks Havoc on Exxon Mobil

For Rothbort's preview heading into the Exxon Mobil conference call, please click here.

There were no real surprises from Exxon Mobil (XOM - commentary - Cramer's Take) today. Pretty much what I outlined in the preview was confirmed this morning. While the company missed consensus estimates for EPS by 2 cents, I have to be honest that, for a company the magnitude of Exxon Mobil, a few cents plus or minus consensus estimates should be considered within the realm of expectations. With an overwhelming preponderance of revenue stream coming from international operations, the impact of the stronger U.S. dollar wreaked havoc on the company's quarter.

I think that the one area that bears watching is the balance sheet. Not from the perspective of financial strength as the Z-score is a respectable 2.40 but rather from the company's cash flow. The drop in realizations has really cut into the company's operational cash flow. Lower interest rates are not helping its cause either. This quarter, Exxon Mobil used every last drop of cash flow to buy stock and pay dividends. Cash flow from operations dropped from $21.4 billion in first quarter 2008 to $9.0 billion in first quarter 2009. As a result, the company is going to ease off the throttle on buy backs in second quarter 2009. In addition, the company will be more selective with capex spending. I don't think that the dividend is at risk as Exxon Mobil boosted it's quarterly dividend yesterday, defying some skeptics in the process.

The company reported estimated results for first quarter 2009, with earnings of $4.55 billion, for EPS of 92 cents. Total revenue was $64.03 billion.

Upstream

Earnings of $3.503 billion declined by $5.282 billion from first quarter 2008. The decline was attributed to lower crude realizations of $4.4 billion, natural gas price declines of $500 million, and higher operating expenses of $300 million. Production increased a slight 2% year over year. U.S. earnings were $360 million, while international earnings were $3.143 billion.

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At the time of publication, Rothbort had no positions in the stocks mentioned, although positions can change at any time.

Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele. He also is the founder and manager of the social networking educational Web site TheFinanceProfessor.com.

Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.

Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Term Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.

For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com. Scott appreciates your feedback; click here to send him an email.