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Chevron (CVX) Misses on Q4 Earnings Despite Strong Prices

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Chevron Corporation (CVX - Free Report) reported adjusted fourth-quarter earnings per share of $2.56, missing the Zacks Consensus Estimate of $3.11 on weaker-than-expected performance from both segments. Precisely, income from the Upstream and the Downstream units totaled $5.2 billion and $760 million, respectively, below their Zacks Consensus Estimate of $5.3 billion and $1 billion.

However, the energy major’s bottom line compared favorably with the year-earlier quarter's earnings of 16 cents on the back of sharply higher commodity prices. The outperformance can also be attributed to better-than-anticipated production volumes, which, at 3,117 thousand oil-equivalent barrels per day (MBOE/d), surpassed the consensus mark of 3,018 MBOE/d.   
In good news for investors, Chevron raised its quarterly dividend by 6% to $1.42 per share (or $5.68 per share annualized).

The company generated revenues of $48.1 billion. The sales figure beat the Zacks Consensus Estimate of $45 billion and increased 91% year over year.

Chevron Corporation Price, Consensus and EPS Surprise

Chevron Corporation Price, Consensus and EPS Surprise

Chevron Corporation price-consensus-eps-surprise-chart | Chevron Corporation Quote

Segment Performance

Upstream: Chevron’s production of crude oil and natural gas decreased 4.9% from the year-earlier level to 3,117 MBOE/d (59% liquids) but it was the fifth successive quarter where volumes topped 3 million barrels per day.  

The year-over-year decline reflects losses due to divestments, entitlement effects and end of the Rokan concession in Indonesia, which were partly offset by strength in the Permian Basin, absence of weather-related drops in the Gulf of Mexico and lower production curtailments.

The U.S. output was up 1.8% year over year to 1,216 MBOE/d, though the company’s international operations (accounting for 61% of the total) fell 8.7% to 1,901 MBOE/d.

Despite being pulled down by the dip in volumes, Chevron’s upstream segment recorded a profit of $5.2 billion in the fourth quarter of 2021, rocketing from the $501 million earned in the year-ago period when the energy sector was gradually coming out of the devastated by the pandemic-induced demand destruction and price plunge.

This was primarily on account of a significant improvement in commodity prices. At $63 per barrel, Chevron’s average realized liquids prices in the U.S. were almost double the year-earlier levels while prices overseas jumped 85%. On the natural gas front, its realizations soared 221% and 86.8%.

Downstream: Chevron’s downstream segment recorded a profit of $760 million, a turnaround improvement from last year’s loss of $338 million. The improvement underlined higher domestic product sales, improved earnings from its Chevron Phillips Chemical Company joint venture, favorable foreign currency effects and stronger margins.

Cash Flows, Capital Expenditure

The company recorded $9.5 billion in cash flow from operations, compared to just $2.3 billion a year ago. The soaring cash flow could be attributed to strong price realizations in the upstream business. Importantly, Chevron’s free cash flow for the quarter was a record $6.9 billion.

The company's cash flow for the full-year 2021 was $29.2 billion, up 175.5% from 2020. Further, Chevron paid $10.2 billion in dividends and bought back $1.4 billion worth of its shares.

The Zacks Rank #3 (Hold) company spent $3.7 billion in capital and exploratory expenditures during the quarter, compared to the year-ago period’s $3.2 billion. Some 79% of the total outlays pertained to upstream projects.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Balance Sheet

As of Dec 31, the San Ramon, CA-based company had $5.6 billion in cash and cash equivalents and total debt of $31.4 billion with a debt-to-total capitalization of about 18.4%.

Strong Earnings Season for Energy

Chevron might have missed profit estimates but supportive industry fundamentals and the emerging multi-year commodity price upcycle have led to a good earnings season for energy companies so far.

Schlumberger (SLB - Free Report) , the leading player in the oilfield service space, reported fourth-quarter earnings of 41 cents per share (excluding charges and credits) that beat the Zacks Consensus Estimate of 39 cents. SLB’s quarterly earnings were aided by higher contributions from Europe/CIS/Africa, strong North America rig activity and increased well construction activities in the U.S. Gulf of Mexico.

Fuel demand has improved drastically, so has oil price, owing to the roll-out of coronavirus vaccines at a massive scale. Schlumberger expects the trend to continue for the next few years, which will drive upstream investment, especially in international resources. SLB expects to capitalize on this positive trend.

Smaller rival Halliburton (HAL - Free Report) also reported strong fourth-quarter earnings on the back of better-than-expected profit from its Drilling and Evaluation division. HAL reported adjusted net income per share of 36 cents, beating the Zacks Consensus Estimate of 34 cents.

In more good news for investors, Halliburton raised its quarterly dividend by 167% to 12 cents per share (or 48 cents per share annualized). Further, as part of its ongoing commitment to debt reduction, HAL announced that it will partly redeem its $1 billion of senior notes due in 2025.

Looking ahead, Chevron’s integrated peer ExxonMobil (XOM - Free Report) is set to benefit from the spike in crude and natural gas prices. For the to-be-reported quarter, the Zacks Consensus Estimate for the upstream segment is pegged at a profit of $5.3 billion, indicating a massive jump from the prior-year quarter’s income of $501 million.

For ExxonMobil’s upstream segment, the massive improvement in commodity prices could have increased fourth-quarter 2021 earnings by up to $1.9 billion from the previous quarter’s levels. Per a recent filing, ExxonMobil expects that changes in the natural gas price will increase fourth-quarter earnings by $700 million to $1.1 billion. Moreover, changes in liquid prices will increase earnings by $400 million to $800 million. XOM’s upstream asset divestments, which involve the U.K. North Sea assets, could raise up to $500 million.

ExxonMobil is set to release fourth-quarter results on Feb 1.