Energy giants Exxon Mobil Corporation (XOM - Free Report) and Chevron Corporation (CVX - Free Report) are set to report third-quarter results on Nov 1, before the opening bell. Let’s take a look at the factors that are likely to have played major roles in shaping the outcome.
Weak Oil a Bother for Upstream Operations
In July, August and September, West Texas intermediate (WTI) crude averaged $57.35, $54.81 and $56.95 per barrel, respectively, per the U.S. Energy Information Administration. In comparison, WTI had averaged $70.98, $68.06 and $70.23 per barrel, respectively, in the comparable three months of 2018. Weak energy demand, owing to intensified trade tensions between the United States and China, was primarily responsible for the significant drop in oil prices.
Lower year-over-year prices of the commodity are expected to have hurt the exploration and production operations of ExxonMobil and Chevron in third-quarter 2019. However, the upstream business is likely to have received partial support from ramped-up oil and natural gas production in Permian — the most prolific shale play in the United States. While the Zacks Consensus Estimate for Chevron’s net worldwide daily oil equivalent production suggests a 5% year-over-year improvement in the third quarter, the consensus estimate reflects almost a 4% increase for ExxonMobil.
Importantly, the latest SEC filing of ExxonMobil revealed that it expects total quarterly earnings from upstream businesses, including domestic and overseas markets, to decline roughly 45% from the September quarter of 2018.
Unimpressive Downstream Business
Demand for refined petroleum products in the September quarter was not impressive, owing to global economic slowdown. This is likely to have hurt refining operations of ExxonMobil and Chevron.
The consensus estimate for worldwide daily refinery throughput volumes of ExxonMobil indicates a year-over-year decline of 8.2% for third-quarter 2019, adding to the concerns. Notably, ExxonMobil anticipates a 70% year-over-year slump in third-quarter 2019 profit from downstream businesses.
Regarding Chevron’s downstream unit, the Zacks Consensus Estimate for the to-be-reported quarter’s refinery input is pegged at 1,742 thousand barrels per day (MB/D), pointing to a rise from the year-ago level of 1,625 MB/D. This is likely to have provided partial support to the company’s downstream business.
ExxonMobil & Chevron Unlikely to Beat Estimates
While Chevron is expected to report a year-over-year earnings decline of 33.3% for the third quarter, ExxonMobil projects profit decline of 50% to $3.1 billion from the prior-year quarter, owing to underperformance by upstream and downstream businesses. Notably, two integrated energy supermajors BP plc (BP - Free Report) and Royal Dutch Shell plc (RDS.A - Free Report) have reported a decline in year-over-year earnings for the third quarter.
Our proven model does not conclusively predict an earnings beat for ExxonMobil and Chevron this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here as you will see below. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Based in Irving, TX, ExxonMobil has an Earnings ESP of -0.47% and a Zacks Rank #5 (Strong Sell).
Chevron — based in headquartered in San Ramon, CA — carries a Zacks Rank #3 and an Earnings ESP of 0.00%. You can see the complete list of today’s Zacks #1 Rank stocks here.
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