Photo courtesy Mike Mozart
It hasn’t been an easy year for the energy sector, and the market is not expecting a full recovery for Exxon Mobil, which releases its third quarter earnings on Friday, Oct. 28.
Although Exxon’s shares were 11 percent up year to date, at $86.92 on October 27, the company, like others in the energy sector, is still suffering from low oil prices. The rebound in the price of crude over the summer and the announcement that the Organization of the Petroleum Exporting Countries could agree to cut production in its next meeting on November 30 made analysts more confident about the sector’s future. But the current situation is still worrisome.
Analysts predict an almost 40 percent decline in net income, from $4.2 billion during the third quarter of 2015 to $2.6 billion in the same period this year. This would put adjusted earnings per share at around $0.61, down from $1.01 a year ago, analysts say. Revenue is also expected to fall 13 percent, from $67.3 billion in 2015 to $58.4 billion.
The third-quarter’s estimates are stronger than the numbers Exxon posted during the second quarter of 2016, when it missed estimates by 36 percent, the biggest miss in a decade according to Bloomberg. The company reported adjusted earnings per share at $0.41, from estimates at $0.63 for the period
Overall, there’s confidence that the industry is doing better. Morgan Stanley released a report named “Here We Grow Again” with previews for the energy sector in the third quarter. Analysts agree that this time Exxon will report a recovery from the second quarter and a slight increase in production. But it will be difficult for the company to compete with smaller and more flexible companies – where profits may be higher, but also the risks.
“We find Exxon’s valuation versus other mega cap Integrated Oil companies not as compelling,” wrote Barclay’s economists on a report released on Tuesday. “We are bullish on oil and think it will be difficult for Exxon to outperform.”
Morgan Stanley analysts pointed out that Exxon has a stronger balance sheet and a higher and more secure yield compared with its main competitor, Chevron, which also reports earnings on Friday morning. But low oil prices continue to haunt these companies.
Goldman Sachs released a report on Monday predicting a tough third quarter for the Big Oil companies, with Exxon, ConocoPhillips and Chevron missing estimates. The analysts also expect low margins in refining
Exxon’s numbers may not be very exciting, but it will be important to see how the company plans to get itself back on track. Oil prices are expected to surpass the current trading of around $50 a barrel in 2017, but analysts don’t see they going back to almost $100 a barrel as two years ago. The main question for Friday’s conference call is how Exxon will overcome this issue.