(Exxon Mobil earnings story updated for conference call commentary on XTO Energy)
NEW YORK (TheStreet) -- Exxon Mobil (XOM) investors looking for a boost from XTO Energy are still looking after the latest results from the standard-bearer of Big Oil.
Exxon Mobil missed earnings estimates in the second quarter, and a host of hard-to-forecast reasons were provided:
- Weaker international refining margins;
- higher international exploration expenses as a few dry holes turned up in Asia
- down time for maintenance.
Yet a year after the transformational XTO acquisition, investors may be wondering when the benefits from the unconventional asset play bests any quarter-to-quarter surprises and results in a bottom line beat. The second quarter wasn't the one, even as profits rose by 41% thanks to high crude oil prices.
Exxon Mobil earnings were off the Wall Street consensus -- and notably lower than the low estimate on Wall Street -- as costs rose and margins and production came in below expectations.
Exxon Mobil's acquisition of XTO Energy has faced constant criticism in the low natural gas price environment, and with the bottom-line disappointment in the second quarter, the XTO issue isn't going away, either.
Exxon Mobil reported earnings of $2.18 in the second quarter. The low estimate on Wall Street was for earnings of $2.20.
The second-quarter profit of $10.7 billion was 41% higher than the year-ago second quarter, but with much higher crude oil prices,investors are not impressed
with base profit improvement year over year.
Analysts had said headed into earnings that there was little room for anything but perfection from energy companies in earnings, or else shares would fall, and Exxon Mobil's report was far from perfect, if not a major catalyst for a leg down in shares.
In general, merely turning in a ho-hum profitable quarter
has been met with a yawn from investors.
Analysts said that there wasn't one clear reason why Exxon Mobil missed, but given that it beat last quarter, investor expectations were higher headed into earnings. Royal Dutch Shell (RDS.A)
posted a 56% profit increase in its second-quarter results released Thursday that met analyst expectations. Shell production fell by 2%, but the production fall was expected due to asset sales. Shell shares trended up on Thursday, though by less than 1%.
Phil Weiss, analyst at Argus Research, noted that a production increase of 10% from Exxon Mobil was short of his expectation of a 12% production increase. The Argus Research model takes account the fact that as crude oil prices rise, contracts between Big Oil companies and national oil companies lead to less total barrels being sold to the Big Oil companies, so this impact should not alone explain the production disappointment.
"The results overall look disappointing," Weiss said.
It wasn't just the headline miss from Exxon Mobil, but costs that rose as margins declined, which led Weiss to conclude, "The results overall look disappointing."
Argus Research estimates pre-tax margin for Exxon Mobil came in at 15%, vs. an expectation of 16% to 17% margins. Total costs and expenses went up while margins went down. One-time foreign exchange impacts could have been a contributing factor to the miss and margin erosion, but the bigger question weighing on Exxon Mobil is whether the low natural gas prices and its huge acquisition of XTO Energy is weighing on profitability.
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