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ExxonMobil Corporation’s (XOM - Analyst Report) second-quarter 2013 earnings of $1.55 per share missed the Zacks Consensus Estimate of $1.89. Earnings also plunged nearly 14% from $1.80 in the year-ago quarter. The decline was mainly due to weaker refining margins and volumes related to planned refinery turnaround and maintenance activities.

Total revenue in the quarter decreased 16.4% year over year to $106.5 billion, but beat the Zacks Consensus Estimate of $101.8 billion.

Operational Performance

Upstream: Quarterly earnings for the segment were $6.3 billion, down 24.6% from $8.3 billion a year ago. The decline was primarily due to lower liquid realizations, which were partly mitigated by improved natural gas realizations.

Production averaged 4.074 million barrels of oil-equivalent per day (MMBOE/d), down 1.9% year over year. When adjusted for the impact of entitlement volumes and OPEC quota restrictions, production was flat.

Liquid production declined 1.2% year over year to 2.182 million barrels per day due to field decline. The decline was partially compensated by project ramp-up and lower downtime.

Moreover, the field decline resulted in the natural gas production slump of 2.6% on an annualized basis.

Downstream: The segment recorded profit of $396 million against $6.6 billion in the year-ago quarter, mainly due to weaker margins and higher planned maintenance.

ExxonMobil's refinery throughput averaged 4.5 million barrels per day (MMBPD), down 10% from the year-earlier level of 5.0 MMBPD.

Chemical: This unit contributed approximately $756 million to the company’s profits, down 47.8% from the year-earlier level of $1.4 billion. The decline was mainly due to the absence of gains related to Japan restructuring.

Financials

During the quarter, ExxonMobil generated cash flow from operations and asset sales of $8.0 billion. The company returned more than $6.8 billion to shareholders through dividends/share purchases. Capital spending increased nearly 10% year over year to $10.2 billion.

Our Take

We believe that ExxonMobil is the world’s best-run integrated oil company, based on its track record of superior return on capital employed. The company boasts diversified operations across the world with several new projects coming online through 2013.

ExxonMobil’s strength lies in its balanced operations, strong financial flexibility, and continued improvement in efficiency and cost control. The company’s efforts to build an unconventional resource portfolio both in North America and overseas are aimed at increasing production through wider exposure to large energy resources with long reserve life and low field declines.

However, we remain skeptical due to the company’s continued disappointing production trend seen in 8 quarters in a row. The company stumbled on the production front, generating lower volumes, aggravated by lower liquid price realization. We see ExxonMobil struggling to grow production volumes over time.

ExxonMobil currently retains a Zacks Rank #3 (Hold). However, there are certain Zacks Ranked #1 stocks – Memorial Production Partners L.P. (MEMP - Snapshot Report), Gulfmark Offshore, Inc. (GLF - Snapshot Report) and Dril-Quip, Inc. (DRQ - Analyst Report) – that appear rewarding in the short term.
 

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