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Exxon's Profits Fall Due to Low Natural Gas Prices and Tight Refining Margins
Exxon Mobil's first-quarter earnings fell short of expectations due to declining refining margins and plummeting natural gas prices, impacting the industry.
Exxon Mobil Corporation reported weaker-than-expected first-quarter earnings for 2024, with both earnings per share and revenues missing the Zacks Consensus Estimate. The oil and gas giant recorded earnings of $2.06 per share (excluding identified items), falling short of the estimated $2.19, and also saw a decrease from the previous year’s earnings of $2.83 per share. Revenue for the quarter was $83.083 billion, which did not meet the expectation of $86.599 million, and showed a decline from the year-ago figure of $86.564 million.
The disappointing results were attributed to declining natural gas prices and a reduction in refining margins. Additionally, ExxonMobil faced a decrease in total production, further impacting its financial performance. The Upstream segment experienced a notable decrease in earnings due to a significant drop in natural gas prices among other factors. Liquids production saw a slight increase, primarily driven by higher output in Canada and Africa, while natural gas production decreased mainly due to lower output from several regions including the United States, Europe, Asia, and Australia.
Refining margins industry-wide were lower, and unfavorable timing effects from derivatives mark-to-market impacts contributed to a decrease in profits for the Energy Products segment. However, the Chemical and Specialty Products segments reported profits, with margins improving in Chemical Products due to reduced U.S. feed costs and strong product sales.
ExxonMobil’s financial position remained solid, with significant cash flow generation and a balanced cash and debt position by the end of the first quarter. However, projections of increased capital expenditures for the year raised concerns about future free cash flow figures.
The stock experienced a decline following the earnings release, despite matching earnings expectations and surpassing revenue forecasts in some reports. This was largely because the overall financial results reflected decreased GAAP profits year-over-year, and challenges such as declining earnings and the impact of high capital expenditures on free cash flow raised skepticism about the stock’s future performance.
Considering the earnings and revenue miss, the stock's immediate future performance seems uncertain. Although ExxonMobil continues to maintain a solid financial base, the impact of low natural gas prices, tight refining margins, and significant capital expenditures may continue to influence investor sentiment. With a Zacks Rank #3 (Hold) following the earnings release, the outlook for ExxonMobil remains mixed. Investors will likely pay close attention to how the company manages its operating challenges and capital spending to assess its long-term growth potential in the evolving energy sector.
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