High Oil Price Boost Chevron Profits - Analyst Blog
April 27 2012 - 8:42AM
Zacks
U.S. energy giant Chevron Corp. (CVX) reported
a rise in its first-quarter 2012 profits, benefiting from higher
oil prices.
Earnings per share (excluding adjustments for foreign-currency
effects) came in at $3.39, handsomely above the Zacks Consensus
Estimate of $3.30 and the year-ago adjusted profit of $3.17.
Quarterly revenue increased marginally (by 0.6%) year-over-year
– from $60,341.0 million to $60,705.0 million – but was 17.5% below
our projection, pulled down by plunging U.S. natural gas
realizations.
Segmental Performance
Upstream: Chevron’s total production of crude
oil and natural gas decreased 4.7% from the year-earlier level to
2,631 thousand oil-equivalent barrels per day (MBOE/d). Volume
gains in Thailand and U.S. were more than offset by normal field
declines, downtime associated with maintenance activities, and
asset sale.
The U.S. output dipped 6.2% year over year, while Chevron’s
international operations (accounting for 75% of the total)
experienced a 4.2% decline in volumes. Losses on the production
front were more than made up by higher realized liquids prices,
resulting in a 3.3% year over year rise in upstream earnings to
$6,171.0 million.
Despite the slight dip in Chevron’s quarterly volumes, we
believe its production outlook remains one of the most robust in
its peer group, with a number of major initiatives scheduled to
come online during the next few years. Major start-ups during the
last few months include the deepwater Usan project in Nigeria and
the Caesar/Tonga project in the deepwater Gulf of Mexico.
Downstream: Chevron’s downstream segment's
earnings increased to $804.0 million during the quarter, from
$622.0 million in the previous-year period. The improvement can be
attributed to gains from the sale of its Spanish fuel marketing
assets, partially offset by lower overseas refined product
margins.
Capital Expenditure, Balance Sheet & Share
Repurchases
The second-largest U.S. oil company by market value after
ExxonMobil Corp. (XOM) spent $6,417.0 million in
capital expenditures during the quarter. Approximately 92% of the
total outlays pertained to upstream projects.
As of March 31, 2012, the company had $18,871.0 million in cash
and total debt of $9,275.0 million, with a debt-to-total
capitalization ratio of about 6.9%. As part of the stock repurchase
program announced in 2010, Chevron repurchased $1,250.0 million
worth of shares in the March quarter.
Dividend Hiked
Recently, the San Ramon, California-based company announced an
11.1% increase in its quarterly dividend to 90 cents per share, or
$3.60 per share annualized. The dividend is payable on June 11 to
shareholders of record on May 18, 2012.
Rating & Recommendation
Chevron is one of the largest integrated energy companies in the
world and has an impressive business model. Its current oil and gas
development project pipeline is among the best in the industry,
boasting large, multiyear projects. Additionally, Chevron possesses
one of the healthiest balance sheets among peers, which helps it to
capitalize on investment opportunities with the option to make
strategic acquisitions.
However, due to its integrated nature, Chevron is particularly
susceptible to downside risk from any weakness in the global
economy. We are also concerned by the company’s high level of
capital spending, which may result in reduced returns going
forward.
As such, we see the stock performing in line with the broader
market and maintain our long-term Neutral recommendation, supported
by a Zacks #3 Rank (short-term Hold rating).
CHEVRON CORP (CVX): Free Stock Analysis Report
EXXON MOBIL CRP (XOM): Free Stock Analysis Report
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