ExxonMobil reported its fourth quarter and full year 2023 financial results on February 2nd, beating Wall Street’s earnings expectations but missing slightly on revenue. The oil giant generated robust profits over the past year due to high oil and gas prices earlier in 2022, although its earnings declined in Q4 as crude prices moderated.
Q4 Earnings Top Views But Revenue Falls Short
Exxon announced Q4 adjusted earnings per share of $2.48, exceeding analysts’ consensus estimate of $2.27 per share. However net income dropped to $12.8 billion from $17.9 billion a year earlier, while revenue declined 5.2% to $84.3 billion which fell short of expectations.
The company attributed the year-over-year profit decline mainly to $2.3 billion in impairment charges related to suspended Russian assets following its withdrawal from the country. Excluding this and other one-time items, earnings totaled $13.9 billion compared to $23.3 billion in the same quarter last year when oil prices peaked early after Russia’s invasion of Ukraine.
Lower crude oil realizations weighed on upstream operations as prices pulled back from mid-2022 highs. Meanwhile Exxon’s downstream refining business improved from last year on stronger margins. The company’s growing natural gas production provided an offset to weaker liquids pricing.
| Financial Metric | Q4 2023 | Q4 2022 | % Change | FY 2023 | FY 2022 | % Change |
|---|---|---|---|---|---|---|
| Earnings | $12.8B | $17.9B | -28% | $56.6B | $55.7B | +2% |
| Revenue | $84.3B | $88.8B | -5% | $413.7B | $413.7B | 0% |
| EPS (Adjusted) | $2.48 | $3.40 | -27% | $13.74 | $12.75 | +8% |
Share Buybacks, Dividend Hike Announced
Alongside earnings, Exxon ramped up shareholder returns by announcing new $20 billion in share repurchases over the next 12 months through 2024, replacing the $30 billion program initiated last year. This comes on top of the oil major’s quarterly dividend which it raised 3.4% to $0.96 per share, its 41st consecutive annual increase.
Exxon returned over $29 billion to shareholders in 2023 through dividends and buybacks, keeping its promise to bolster payouts as oil markets strengthened. The company expects to return 25% of excess cash flow to owners over 2023-2027. Its steadily rising dividend yields nearly 4% which stands far above other oil majors and S&P 500 companies.
Production Hits Record Level
A key highlight of Exxon’s quarter was oil & gas production reaching the highest levels in its 152-year history. Output grew to 4.4 million oil-equivalent barrels per day, an 8% increase over last year. Production has climbed every quarter since end-2020 as Exxon benefits from heavy investments in Guyana and the Permian Basin.
The company remains on track to meet its 2027 guidance for over 700,000 bpd from Guyana projects. Upstream earnings fell from soaring levels last year but still totaled $10.2 billion in the fourth quarter as higher volumes helped offset lower prices. Capital expenditures also hit a record level in 2022 and are seen moderating this year.
Crude Prices Retreat, Outlook Cautious
Although oil prices dipped late last year from mid-2022 peaks, benchmarks remain well above pre-pandemic levels supporting substantial industry profits. The outlook for energy markets is highly uncertain however. A potential global recession, renewed Covid waves in China, and other factors could hit crude demand in 2023. OPEC+ may adjust supply policies after last year’s cuts.
Exxon did not issue full-year earnings guidance. But it noted current downstream refinery margins are far below 2022 peaks while natural gas realizations face pressure from mild winter weather and high inventories. Storm damage and inflation are also headwinds going into this year. Yet operating cash flows are still expected to fund capital spending and shareholder returns per plan.
Trading Operation Aids Q4 Results
An emerging profit driver for ExxonMobil last year was its trading unit which capitalized on extreme oil and gas price volatility. The division earned over $4 billion in 2022 outperforming competitors like Shell and TotalEnergies. Trading activities again helped boost Exxon’s earnings in the fourth quarter based on derivatives gains.
The trading arm managed risks around the company’s equity production volumes while seizing chances to supply higher-value markets. Exxon was late expanding into this segment but results now show it competing strongly. These operations add resilience as well as upside leverage when markets see large commodity price swings.
Strategic Initiatives Progressing
Beyond impressive upstream results from Guyana and the Permian Basin last year, Exxon made strides on multiple fronts that position it well strategically. The company further diversified its portfolio through a $1.9 billion acquisition of biofuels maker Cognite Bioenergy, advancing its low-carbon initiatives. It also joined a carbon capture transportation line project and a proposal for a Houston carbon storage hub.
To enhance shareholder returns, Exxon expanded divestments like the sale of its Canada shale gas operations for $1.5 billion. It cut operating expenses by $3 billion in 2023, enabling cash savings despite inflationary pressures. And investments in higher-return deepwater projects worldwide hit a 9-year high. Each of these efforts help support earnings growth and cash generation over time.
Financial Community Reacts
Exxon’s better-than-expected Q4 bottom line sparked an initial share price gain, as the company continues generating immense cash enabling large buybacks. But the revenue miss raised some concerns about weaker energy demand trends after years of tight supply conditions.
Most analysts emphasized ExxonMobil’s ability to grow profits the past 2 years despite volatile markets, benefiting from years of strategic positioning. Its diverse business model provides earnings stability as conditions invariably shift. UBS wrote the quarter was “solid operationally” while JPMorgan saw “strong FCF generation through the cycle”.
Others like Bank of America cautioned about an unfavorable macro backdrop with consumers under pressure. But Exxon still exceeded expectations for 2023 with help from trading, and payouts remain on a healthy path which supports investor optimism around long-term growth prospects.
Outlook Going Forward
With over $56 billion in net income last year and adjusted per share earnings reaching an all-time record, Exxon demonstrated its ability to deliver substantially higher profits after years of repositioning its asset base. Although headwinds have emerged with moderating oil & gas prices, the company expects another strong year in 2023 based on its guidance.
Exxon does face a cloudier fundamental landscape ahead compared to the past couple years when undersupply and geopolitical tensions drove energy markets. Yet its diverse business model focusing on low-cost barrels and shareholder value provides resilience if conditions deteriorate. And the company can still capitalize when markets tighten again.
Through further enhancing cash flows funding capex and distributions, optimizing its portfolio including trading & low-carbon ventures, and keeping expenses in check, Exxon appears capable of sustaining solid financial performance. Its production outlook remains among the strongest in its peer group as well. For ExxonMobil, the formula of the past several years positions it sturdily to navigate the macro uncertainties present in 2023 and beyond.
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