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Chevron Corporation (CVX) on Q1 2014 Earnings - Call Transcript

This transcript originally appeared on Seeking Alpha.

Title: Chevron Management Discusses Q1 2014 Results - Earnings Call Transcript

Symbol: CVX

Call Start: 11:01

Must Read: CVS Caremark Corporation's (CVS) Larry Merlo on Q1 2014 Earnings - Call Transcript

Call End: 11:58

Chevron Corporation (CVX)

Q1 2014 Earnings Conference Call

May 2, 2014 11:00 AM ET

Executives

Pat Yarrington - VP and CFO

Jeff Gustavson - General Manager, IR

Analysts

Evan Calio - Morgan Stanley

Ed Westlake - Credit Suisse

Paul Sankey - Wolfe Research

Doug Leggate - Bank of America Merrill Lynch

Paul Cheng - Barclays Capital

Iain Reid - Bank of Montreal

Faisel Khan - Citigroup

Pavel Molchanov - Raymond James

Guy Baber - Simmons & Company

Roger Read - Wells Fargo

Presentation

Operator

Good morning. My name is Jonathan, and I will be your conference facilitator today. Welcome to Chevron's First Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference call over to the Vice President and Chief Financial Officer of Chevron Corporation, Ms. Pat Yarrington. Please go ahead.

Pat Yarrington

Okay. Thank you, Jonathan. Welcome to Chevron's first quarter earnings conference call and webcast. On the call with me today is Jeff Gustavson, General Manager for Investor Relations.

We will refer to the slides that are available on Chevron's website. Before we get started, please be reminded that this presentation contains estimates, projections and other forward-looking statements. We ask that you review the cautionary statement on Slide 2.

Slide 3 provides an overview of our financial performance. The company's first quarter earnings were $4.5 billion or $2.36 per diluted share. Results are consistent with our earlier guidance, where we highlighted specific negative impacts associated with foreign exchange and selected asset impairments and related charges, which totaled approximately $500 million for the quarter or $0.26 per share. Return on capital employed for the trailing 12 months was 12%. Our debt ratio at the end of March was approximately 13%.

Turning to Slide 4. Cash generated from operations was $8.4 billion during the first quarter. Cash capital expenditures were $8.5 billion. At quarter end, our cash balances totaled $16.2 billon, giving us a net debt position of $6.9 billion.

On Slide 5, this week Chevron's Board of Directors declared a $1.07 per share quarterly common dividend payable in mid-June. This represents an 8% annualized payout increase. Since 2004, we have grown the dividend by a compound annual rate in excess of 10%, which leads the competitor groups.

In the first quarter, we repurchased $1.25 billion of our shares. In the second quarter, we expect to repurchase the same amount. We are committed to competitive, consistent and growing shareholder distributions. This demonstrates the importance we placed on balancing long-term investor return objectives, achieved through reinvestment in the business, with near-term return objectives achieved through distributions.

It also reflects the strength of our balance sheet, our strong portfolio and our confidence in the cash generation potential of our growth projects.

Turning to the next slide. We've incorporated two new slides into the presentation this quarter, which provide year-over-year comparisons consistent with our earnings press release. The first, shown on Slide 6, compares current quarter earnings with the same period last year.

First quarter 2014 earnings were $4.5 billion, approximately $1.7 billion lower than first quarter 2013 results. Adverse foreign exchange movements accounted for $325 million or 20% of the overall decline. You'll recall that foreign exchange movements for us are largely book translation effects with very little cash flow impact.

Upstream earnings were down $1.6 billion. In addition to unfavorable foreign exchange impacts of about $225 million, the deterioration reflected lower crude oil production and liquids realizations and higher tax effects, DD&A and exploration expenses.

Downstream results were essentially flat. And the other segment reflected the impairment of a mining asset, which resulted in an approximately $265 million absolute impact during the quarter, and was offset to a large degree by lower corporate expenses.

Turning to Slide 7. I'll now compare results for the first quarter of 2014 with the fourth quarter of 2013. First quarter earnings were $418 million lower than fourth quarter results.

Upstream earnings were down $545 million, with adverse foreign exchange movements accounting for two-thirds of this decline. The timing of listings was the second significant contributor to upstream quarter-on-quarter deterioration.

Downstream results increased by $320 million with nearly equal improvements noted in the U.S. and the international segments. The current quarter had favorable impacts from lower operating expenses, stronger chemical results and positive foreign exchange movements, all of which more than offset the adverse volume effects of a heavier turnaround schedule.

The variance in the other bar largely reflects the impairment of a mining asset, partially offset by lower corporate expenses.

Jeff will now take us through the comparisons by segment. Jeff?

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