XOM's Record Quarter Met With Skepticism

Updated from 8:08 a.m. EST on Feb. 1.

Exxon Mobil (XOM - commentary - Cramer's Take) reported a better-than-expected quarter, which was primarily driven by strength in its largest business segment, the upstream sales and distribution. Despite the slowdown in the U.S., overseas demand and higher crude oil prices helped to drive increased earnings in the upstream segment.

Margin compression in the refining segment slowed down earnings growth and, in the chemical segment, led to year-over-year declines in profitability.

The market was not impressed with Exxon Mobil's results given some of the margin issues and the fact that crude oil continues to remain under pressure. As I mentioned in the preview, the company tends to trade in tandem with crude oil, and the stock will likely be under pressure until crude oil rallies and signs of improvement in the refining businesses begin to materialize.

Exxon Mobil reported fourth-quarter 2007 EPS of $2.13, representing a record quarter, and 26% year-over-year growth. For the full year, the company earned another record $7.28. Revenues soared to $116.6 billion for the quarter and $404.6 billion for the full year. Net income was $11.66 billion for the quarter and $40.6 billion for the year.

In the upstream segment, earnings rose $2 billion year over year, to $8.2 billion. After tax, earnings per barrel were $20.97. Driving earnings growth was higher crude and natural gas realization as crude oil realizations rose $29 per barrel year over year. Oil volumes rose 1% year over year driven by higher European demand. Excluding Venezuelan expropriation and divestitures, production was up 3%.

In the downstream segment, earnings rose $310 million year over year, to $2.3 billion. Lower U.S. refining margins reduced earnings by $410 million. Volume and product mix increased earnings by $290 million, which benefitted from refinery capex expenditures.

In the chemical segment, earnings declined $130 million year over year, to $1.1 billion. Declining margins -- due to higher feedstock costs, which more than offset increased production realizations -- reduced earnings by $520 million. Favorable forex markets yielded $220 million in earnings benefits.

---

At the time of publication, Rothbort was long Marathon Oil, 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.

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 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.