Ahead of the Tape: Exxon Still Has Fuel in Its Tank -- WSJ
April 29 2016 - 03:02AM
Dow Jones News
By Steven Russolillo
If crude oil's steep selloff has taught anything, it is that no
energy company is immune from it -- not even industry stalwart
Exxon Mobil Corp.
The energy giant lost a badge of honor on Tuesday when it was
stripped of its coveted triple-A credit rating. Standard &
Poor's cited concerns about Exxon increasing its borrowing to keep
up with its capital-return program.
But Exxon marches to the beat of its own drummer, announcing a
day later that it would boost its quarterly dividend by 3%.
Typically a footnote, the timing of the announcement was
poignant.
For one, it maintains Exxon's status in the S&P 500 dividend
aristocrats -- the select companies that have raised dividends
every year for the past 25 years. And in an environment where
energy companies are battening down the hatches, a boosted dividend
holds that much more cachet.
Exxon's first-quarter results, due Friday, should show its
confidence doesn't stem from a financial turnaround just yet.
Analysts polled by FactSet expect net income of $1.29 billion, down
74% from a year earlier. Exxon hasn't logged a quarterly profit
below $2 billion since 1999, right before its merger with Mobil was
completed.
That has forced a lot of belt-tightening, but not as much as one
might expect. Exxon plans to cut capital expenditures by 25% this
year and put buybacks on hold. That is a sharp shift in strategy
considering it spent more on buybacks than dividends from 2004
through 2014. Just this century it has reduced its share count by
around 40%. But it has cut investment less sharply than it could
have, a hallmark of Exxon's consistency across good and bad
cycles.
The brutality of the current market has prompted Exxon's debt to
more than triple since 2012 -- a factor spurring the downgrade. Of
course AA+ is nothing to sneeze at, particularly if oil prices have
actually bottomed. The first quarter could mark Exxon's earnings
trough.
Investors seem to approve of the way Exxon has handled the
washout. Exxon has outperformed all of its integrated peers
handsomely over the past year, including Chevron Corp., which also
reports on Friday.
This tiger still has more room to run.
Write to Steven Russolillo at steven.russolillo@wsj.com
(END) Dow Jones Newswires
April 29, 2016 02:47 ET (06:47 GMT)
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