Investors had braced themselves for the bad news for Exxon Mobil Corp. and Chevron Corp., and their fears were confirmed on Friday when both power companies reported second-quarter results that showed sharp declining sales and losses amid economic destruction caused by the coronavirus.
Exxon XOM,
reported an adjusted loss of 70 cents per share on sales of $ 32.6 billion, in contrast to a FactSet consensus that required an adjusted loss of 61 cents per share on sales of $ 38.2 billion.
Chevron CVX,
reported an adjusted loss of $ 1.59 per share on sales of $ 13.5 billion, in contrast to FactSet’s consensus of an adjusted loss of 95 cents per share on sales of $ 21.9 billion.
In a call with analysts after the results, Exxon said it remained committed to paying dividends. Exxon and Chevron are the only two energy companies that are “dividend aristocrats,” or S&P companies that have paid dividends for at least 25 consecutive years. Exxon has paid a dividend for 37 years, and Chevron’s streak is almost as long.
Exxon has “a long history of providing a reliable and growing dividend. A large part of our shareholder base has come to see that dividend as a source of stability in its income, and we take it very seriously,” said Vice President Neil Chapman. on the company’s earnings call. Exxon plans to further reduce operating expenses and defer expenses where it can, and doing so “will allow us to keep the dividend and keep debt at its current level.”
Exxon’s cash flow for the year covers approximately 70% of its capital program, and none of the dividends, which is supported through Exxon’s balance sheet, RBC Capital Pavel Molchanov said in a note on Friday.
As such, a significant increase in leverage cannot be avoided: we expect net debt / capitalization to rise from 19% at the end of 2019 to 27% at the end of 2020, the latter being the highest level since the Exxon merger / Mobil in 1999, “he said.
Exxon executives said their goal is to avoid taking on more debt, but they will likely need loans of more than $ 10 billion, given a flat budget for 2021, he said.
“While we consider the dividend to be safe, if for no other reason than management’s desire to maintain S&P Aristocrat status, the cash outlay is colossal under current conditions,” Molchanov said, keeping his rating on Exxon shares in the equivalent of the sale.
Related:Exxon and Chevron are ‘dividend aristocrats’, but for how long?
Exxon’s second quarter “probably raises as many questions as it answers,” Citi analyst Alastair Syme said in a note on Friday. “The dividend is undoubtedly the real question, or perhaps more correctly, the future scenario that the company is adopting to shore up shareholder returns,” he said.
The key factor in Exxon’s failure was the realization of E&P prices, while production was generally in line, Neil Mehta said with Goldman Sachs in a note.
Chevron’s failure was primarily driven by the temporary effects of volatile crude prices throughout the quarter and other corporate expenses, Mehta said. “Production exceeded our expectations, with volumes that primarily exceeded our estimates for US liquids (both liquids and gas) and internationals,” he said.
In Chevron’s “challenging” second quarter, the company’s debt expanded 8% quarterly, “above our expectations and the accumulation rate seen in the peers (integrated oil companies),” said Syme of Citi. Its balance sheet “is not as pristine as it was before,” and the deal to buy Noble Energy Inc. will add more pressure in the second half of the year, she said.
Last week, Chevron announced plans to buy Noble Energy for $ 5 billion.
Chevron’s action “has been a common name in the sector until 1H, we would argue for security reasons,” Symes said. “But Q2 results show an image that may not be as resilient as the market thought it might be.”
SunTrust analysts said they continued to prefer Chevron over Exxon, as Chevron has “ample liquidity to continue paying its dividends.”
While Chevron’s US oil volumes “hold surprisingly well” quarter-over-quarter, international prices disappointed, they said. The refining contribution was also lower than expected, with negative margins that reduced cash flow, they said.
Exxon shares have lost 40% this year, while Chevron shares are down 32%. That compares to losses of around 9% for the DIA Jones Industrial Average DJIA,
and less than 1% for the S&P 500 SPX index,
In the same period, both companies are components of Dow.
.
