ExxonMobil's earnings, buyback send a bad signal

ExxonMobil reported fourth quarter earnings per share on Monday that were down about 18 percent from the same period a year ago. The company was doing reasonably well until the final quarter of 2014.

Indeed, full-year earnings for 2014 were up compared to 2013. That's because oil prices held up over $90 for most of the year, until the fourth quarter. The real problem is the estimates for 2015.

Exxon earnings:

  • 2012: $8.10
  • 2013: $7.37
  • 2014: $7.45
  • 2015 (est.): $4.28

Wow, that is a 42-percent drop in 2015 from 2014! Is there any wonder the stock is near a 52-week low and down 5.4 percent in January alone?

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Also getting a lot of attention is the reduction in Exxon's buyback to $1 billion for the first quarter from $3.3 billion in Q4. But keep in mind the numbers have been coming down for several years:

Exxon buybacks (in billions):

  • 2011: $21
  • 2012: $21
  • 2013: $16
  • 2014: $12.9
  • 2015 (est.): $4

Still, that is a big drop. A $4 billion-per-year buyback (provided Exxon does $1 billion for all four quarters) is a drop in a bucket when you have a market cap of $370 billion. It's a rounding error.

Why not buy back even when your share price is down? Exxon knows it cannot predict oil prices. What if they stay low for another two years?

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What Exxon has been doing is gradually increasing its dividends:

Exxon dividend per share

  • 2011: $1.85
  • 2012: $2.18
  • 2013: $2.46
  • 2014: $2.76

Indeed, this is one of the big differentiators for Exxon. Shell, for example, has frozen its dividend. The oil major has been increasing its dividend for something like 27 years.

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Will Exxon have writedowns in asset values? Some of its projects cannot be economical at $50 a barrel. Chevron has already written down some assets.

On CNBC this morning, Oppenheimer analyst Fadel Gheit pointed out that every $10 change in oil prices reduces Exxon's earnings by $5 billion yearly. Oil prices were $94 on average last year. Even if it is $74 next year, that's $20 billion less. In 2014, Exxon earned $32 billion. That's a big difference.