profit growth slowed to a trickle in the latest quarter.
Unlike its American counterparts -- which pumped out strong fourth-quarter results -- BP failed to capitalize on high energy prices and solid volumes during the final period of last year. The company, like fellow European supermajor
( RD), instead disappointed investors with a surprising earnings miss triggered by poor results in one of its major business units.
The setback came on a day in which oil was a major theme for investors, after
surprised observers by
pledging to slash its daily output by some 10% in an effort to keep prices from sliding.
For its part, BP posted fourth-quarter operating profits of $2.67 billion -- up just 1% from a year ago -- that fell 11% shy of analyst expectations. Weak performance by the company's largest division stirred up particular concern.
"The result from exploration and production activities ... was particularly disappointing, given the strength of the operating environment," noted BNP Paribas analyst David Cline, who has a neutral rating on the stock. Meanwhile, "the organic reserves replacement ratio of 122% is adequate but below levels recorded during the previous three years of 162% to 168%."
BP blamed the E&P shortfall on a number of unusual items, such as currency effects and restructuring charges, that wiped out some gains from higher energy prices. But Dresdner Kleinwort Wasserstein analyst Neill Morton viewed at least some of the special items as ongoing in nature and, like Cline, expressed disappointment in the division's overall performance.
"Even after adding back unusual items, clean fourth-quarter net income was still around $100 million shy of our bottom end-of-range forecast," wrote Morton, who reiterated his reduce rating on the stock. "A low reserve replacement only compounds the disappointment."
The market apparently shared Morton's sentiment. Investors pushed shares of BP down 2.7% to $47.10 late Tuesday morning.
Meanwhile, the company itself chose to focus on "record" full-year results.
BP saw pro forma earnings rocket 42% to $12.4 billion in 2003. And it promised more growth to come.
"Our results in 2003 have set a new record," declared BP CEO Lord Browne. "We have delivered a good result from our existing assets and operations while building a platform for the future."
Browne pointed to cash-flow generation and renewed stock buybacks -- two positives in the quarter -- as prominent focuses going forward. And some analysts did take notice.
Tyler Dann at Banc of America Securities pointed to several favorable developments, including the resumption of stock repurchases -- and even the reserve replacement -- as reasons to buy the stock on weakness. Goldman Sachs analyst Matthew Lanstone, focusing on the company's cash flow as well, offered a similar recommendation.
"We view the earnings as disappointing," Lanstone acknowledged, "but note that the strong cash flow, stable capex guidance and proposed resumption of the buyback program are significant positive differentiating factors against the peer group."
Fellow supermajors -- including
and Royal Dutch/Shell, which suffered a
sharp slide after last month's oil-reserve reversal -- fell slightly after BP's fourth-quarter report.