Chevron Whiffs on Earnings, But Reports $2B U.S. Tax Bump

At first glance, Chevron Corp.  (CVX)  appeared to put its biggest U.S. competitor to shame Friday, Feb. 2, after the San Ramon-based oil supermajor reported an enormous earnings beat, with $1.65 per share, or $3.1 billion, in earnings on $36.4 billion in revenues for the fourth quarter. 

But that's only after a $1.06 per share boost to earnings thanks to U.S. tax reform, Jefferies LLC analysts Jason Gammel and Marc Kofler wrote Friday. 

Houston-based Exxon Mobil Corp. (XOM) had previously reported a substantial miss with 88 cents per share in earnings on $66.5 billion in sales, while analysts were calling for earnings of $1.03 per share on revenue of $71.94 billion.

A consensus of analysts surveyed by FactSet had expected Chevron to report earnings of $1.23 per share on sales of $37.37 billion. 

The reported beat mainly comes due to a non-cash provisional tax benefit related to U.S. tax reform that Chevron said totaled $2.02 billion. Unlike Exxon, Chevron did not report what its earnings were before applying the tax benefit, making it hard to compare its earnings to analysts' estimates. The company's shares dove more than 2% quickly after markets opened Friday, however, as Chevron's true earnings were far less impressive than implied. 

Chevron's net income was closer to 72 cents per share, according to Jefferies, an even worse miss than for Exxon.  

Chevron said its fourth quarter earnings were slightly impaired by both a non-cash charge of $190 million related to a former mining asset and $96 million worth of foreign currency effects. 

Meanwhile, Chevron reported full-year 2017 earnings that also beat analysts' expectations thanks to the tax benefit, recording net income of $9.2 billion, or $4.88 per share, on $141.72 billion in sales.

Tax reform again bolstered Chevron's full-year earnings by $2.02 billion, and the company earned $1.44 billion thanks to asset sales in 2017. The full-year earnings faced impairments and other non-cash charges of $840 million, however, along with $446 million worth of foreign currency effects. 

Chevron's U.S. upstream segment earned $3.69 billion for the fourth quarter of 2017 and $3.64 billion for the full year, which compares well to the previous year when the upstream unit earned $121 million in the fourth quarter but lost $2.05 billion on the year.

The company's international upstream segment recorded $1.6 billion in net income in the fourth quarter and earned $4.51 billion for the full year, a marked improvement over its $483 million loss in all of 2016.

According to Jefferies, Chevron's true U.S. and international upstream earnings were about 13 cents per share and 9 cents per share, respectively. 

TheStreet reported Thursday that JPMorgan analysts expected fourth quarter net income of $2.2 billion for the entire upstream segment, while Credit Suisse analysts were calling for net income of $2.1 billion. 

Chevron's downstream segment similarly blew analysts' number out of the water for the fourth quarter thanks to tax adjustments. The company's U.S. downstream unit earned about $1.2 billion in the fourth quarter and $2.94 billion for the year. The international downstream unit recorded net income of just $84 million for the fourth quarter, however, but $2.28 billion for all of 2017. 

Before tax benefits, the U.S. downstream unit had a poor showing in the fourth quarter, with a loss of 38 cents per share, Jefferies said. The international dowstream unit fared little better, recording a loss of 21 cents per share. 

TheStreet reported Thursday that Credit Suisse called for $775 million in downstream earnings. 

For the year ahead, Chevron is expected to maintain its 2018 capital expenditures budget of $18.3 billion and disclose 2018 production guidance of 2.9 million barrels of oil equivalent.

This is a breaking news story. Please check back for updates.

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