04 May 2020

Q1 Beat Unable to Fuel Exxon Mobil’s Shares

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What’s happening: Shares of Exxon Mobil Corp tumbled on Friday, despite the oil and gas major reporting upbeat adjusted earnings for its first quarter.

What happened: Exxon Mobil’s shares dived 9.1% to close at $43.14 on Friday following the release of its quarterly results. The market witnessed a massive sell-off in the stock, despite the oil giant reporting its revenues marginally ahead of the estimates and adjusted earnings widely higher than expectations.

Investors chose to shrug off positive comments from management and, instead focused on concerns related to the company’s net loss figure due to inventory writedowns in the quarter.

The Irving, Texas-based company joined a long list of oil firms recording massive net losses on plummeting demand and steeply lower oil prices. The global demand for oil has shrunk by almost one-third due to lockdowns imposed by various governments around the world to contain the spread of coronavirus. Most large oil companies have announced quarterly losses due to massive inventory writedowns resulting from excess supply of oil, which also pushed prices down to record lows

  • Exxon Mobil posted a net loss of $610 million, or 14 cents per share, versus a net income of $2.35 billion, or 55 cents per share in the same quarter last year.
  • Revenues slipped to $56.16 billion in the first quarter, from $63.63 billion in the year-ago quarter, but still exceeded the consensus estimate of $53.5 billion
  • Excluding $2.9 billion in one-time items, adjusted earnings slipped to 53 cents per share, from 55 cents per share in the same quarter last year. The figure widely beat the consensus estimate of 1 cent per share.

Why it matters: Exxon Mobil’s latest results looked similar to rivals BP and Royal Dutch Shell. Major oil companies have been looking to protect payouts to their investors by lowering expenses or lifting borrowings. Exxon, along with BP and Chevron, have maintained their dividends for the quarter, while Shell chose to cut its dividend for the first time since World War II.

The US oil major announced a significant cut to its capital expenditure for 2020, reducing spending by 30% to about $23 billion. Exxon Mobil also disclosed plans to achieve cost savings by slashing its cash operating expenses by 15% to protect its bottom line.

While oil and gas production dropped 91% and the refining unit swung to an operating loss of $611 million, the company’s US shale production expanded by 56% and the chemical business recorded a profit of $144 million in the quarter.

Exxon Mobil’s chairman and CEO Darren Woods highlighted that the results were purely due to the coronavirus outbreak and the long-term fundamentals of the company continue to be strong.

What to watch: With China reopening its economy, the company’s sales in the country are recovering. Investors look forward to the company getting back on its growth trajectory, with an easing of lockdown restrictions in other parts of the world. Markets expect the situation in the US to normalise soon, so that Exxon Mobil can resume its operations

The Markets Today

     

European stocks will be in focus today, ahead of the region’s manufacturing PMI reports scheduled to be released later in the day.

Context: Most European markets, including Italy, Germany, France and other major economies, remained closed on Friday for the Labour Day holiday. Despite closing lower on Thursday, European markets recorded their best monthly performance in around five years.

Details: The European Central Bank kept interest rates unchanged on Thursday, but said it was ready to raise its stimulus measures to boost the economy which is suffering due to the coronavirus pandemic. The ECB also announced the easing of some lending requirements for banks in the region.

Europe also released disappointing economic numbers on Thursday, with the Eurozone economy shrinking by 3.8% in the first quarter.

European stocks are also likely to respond today to the sharp decline in US stocks on Friday after President Donald Trump announced retaliatory measures to impose new tariffs on China citing the reason as the COVID-19 outbreak beginning in the country.

Also, UK stocks fell 2.3% on Friday despite Prime Minister Boris Johnson’s comments on releasing a reopening plan for the economy soon.

The German 30 fell 2.22% on Thursday, while the French 40 declined 2.12% and the FTSE MIB closed lower by 2.09%.

What to watch: Investors continue to assess the daily coronavirus figures, with the total number of cases exceeding 3,506,920 globally. The number of positive COVID-19 cases in Spain has surpassed 217,460 with around 25,260 deaths, while cases in Italy have exceeded 210,710 with 28,880 fatalities.

Markets also await manufacturing PMIs reports from the Eurozone and various countries from the region. The IHS Markit Eurozone manufacturing PMI is expected to drop to 33.6 in April, from a reading of 44.5 in March.

Other Markets: US indices closed lower on Friday, with the Dow, S&P 500 and Nasdaq 100 down by 2.55%, 2.81% and 3.20%, respectively.

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What else to watch today

     

Turkey’s inflation rate, producer prices and manufacturing PMI, Spain’s manufacturing PMI and new car sales, Italy’s manufacturing PMI, France’s manufacturing PMI, Germany’s manufacturing PMI, South Africa’s manufacturing PMI and total vehicle sales, Mexico’s business confidence, manufacturing PMI and foreign exchange reserves, Brazil’s manufacturing PMI and balance of trade, Russia’s corporate profits as well as the US ISM New York index and factory orders.

 

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