What happened
Shares of integrated oil major ExxonMobil (XOM 0.18%) were higher by about 6.5% at one point in morning trading on Tuesday. The company's earnings announcement, which came out before the open of trading, was the driving force here. But the actual results were likely less important than the other things management said.
So what
Oil and natural gas prices have been fairly strong for a while, and investors basically went into Exxon's fourth-quarter 2021 earnings expecting to hear good numbers.
They weren't disappointed, with the company reporting revenue of nearly $85 billion, up from $46.5 billion in the same quarter of 2020. Adjusted earnings were $2.05 per share, up from an adjusted profit of $0.03. Both numbers bested analyst expectations, which were for revenue of $82.4 billion and earnings of $1.96 per share. Investors like when a company beats expectations, so this was good news overall, but the good quarter was still not a shocking development given the recent commodity strength in oil and natural gas.
Image source: Getty Images.
What was more notable was the company's guidance. First, the day before earnings were released, Exxon announced plans to streamline its business structure and give greater prominence to clean energy. Today it provided more clarity on some of its plans, including an intention to continue working on cost reductions and maintaining annual capital spending in the $21 billion to $24 billion range, below pre-pandemic projections.
Included in that spending plan, however, is the intention to increase onshore energy production in the Permian Basin by as much as 25%. The company also initiated a $10 billion stock buyback plan that is expected to be completed over the next 12 to 24 months.
The key here is that high energy prices and subdued spending are likely to support material cash flows that can be put to other uses. These include ongoing debt reduction, stock buybacks, and paying the company's dividend, which looks increasingly secure. Investors have had all these things on their minds for some time, and it appears that Wall Street is pleased with the way the energy giant is choosing to handle these initiatives now that energy prices have recovered.
Now what
Exxon, like many of its peers, has seen a material stock price recovery from the early pandemic lows. That said, the yield is still a fairly generous 4.6%. As one of the world's largest integrated energy majors, this is an interesting stock for those seeking an oil and natural gas play.
That said, it hasn't moved as quickly into the clean energy space as some of its European peers. However, if you want more of an oil focus, this approach might be exactly what you are looking for, with today's earnings showing how well the company can do when commodity prices are high.
