ExxonMobil (XOM +0.52%) delivered record-smashing results last year. The oil giant's $59.1 billion of adjusted earnings were $36.1 billion more than the prior year. That set a record for Exxon. It was also the highest tally in the history of the Western oil industry.
Despite that impressive feat, Exxon's fourth-quarter results were a bit underwhelming because revenue came in below analysts' expectations due to lower oil and gas prices. The company also didn't follow rival Chevron's (CVX +0.75%) lead by unveiling a significant boost to its share repurchase program. These disappointments likely have some investors wondering whether it's time to bail on the energy stock.
NYSE: XOM
Key Data Points
Drilling down into Exxon's record results
Exxon's long-term investment strategy paid big dividends last year. Unlike many others in the oil industry, Exxon continued investing in its business during the pandemic-driven downturn of 2020, "lean[ing] in when others leaned out," as CEO Darren Woods stated in the earnings report. That positioned the oil giant to capitalize on the recovery over the past couple of years. Production from Guyana and the U.S. Permian Basin rose by more than 30% in 2022. Meanwhile, Exxon's refining business delivered its best performance ever in North America, while its global operations achieved their highest level since 2012.
These strong operational results enabled Exxon to produce a massive $76.8 billion of cash flow from operating activities last year and an enormous $62.1 billion of free cash flow. That gave the company the money to continue investing in its traditional and new energy businesses, strengthen its balance sheet, and return cash to shareholders. Exxon paid $14.9 billion in dividends and repurchased a similar amount of its stock. The company also increased and extended its share repurchase program to as much as $35 billion during the 2023 to 2024 time frame. That's a sizable figure. However, it pales in comparison to Chevron's recently announced $75 billion program.
While Exxon produced strong results for 2022, a few items from its fourth-quarter results didn't sit well with investors. The lack of a bigger buyback was disappointing in light of Chevron's big boost. Meanwhile, even though revenue rose from nearly $85 billion to over $95 billion, it was $2 billion below analysts' consensus estimate. Exxon also reported a few unfavorable items in the quarter, including a $1.3 billion hit associated with windfall taxes on its European operations and asset impairment charges. Finally, its quarterly profit total of $12.8 billion was well below the $19.7 billion it posted in Q3, due in part to those unfavorable items and lower oil and gas prices. However, that was double Chevron's fourth-quarter profit.
Cause for concern or a bump in the road?
While it can be easy to nitpick Exxon's results, the oil giant produced a prodigious amount of cash flow last year, which puts it in a very strong position for the future.
Image source: ExxonMobil.
Exxon strengthened its fortress-like balance sheet, building its cash position and repaying debt. These factors drove down its net debt-to-capital ratio to a very low level for an oil company.
That gives it the flexibility to continue investing in its business and returning cash to shareholders even if market conditions deteriorate. Exxon plans to invest $20 billion to $25 billion annually into its traditional and new energy businesses through 2027. Meanwhile, it established its share repurchase target through next year and continues paying its sizable dividend.
While Exxon is in a strong position to weather lower oil prices, that's not what it sees ahead. CEO Darren Woods gave his outlook for the oil market in an interview with CNBC. He stated:
As the economy continues to recover, it's going to take time for the investments being made now to bring additional capacity on. We're going to be in this fairly tight window of demand and supply being tight. We'll see prices come back up again.
That outlook bodes well for Exxon's future. The oil giant should continue to produce robust earnings and cash flow from its traditional energy business in the coming years. That will give it more money to invest and return to shareholders.
This oil stock has plenty of fuel left in the tank
While Exxon's fourth-quarter results were a little underwhelming, the oil giant delivered the highest profits ever reported by a Western oil company last year. Given its CEO's view of oil prices, it could come close to repeating that performance in 2023. That would give the company even more money to invest in its business and return to shareholders, which should drive its stock higher in the coming years. As a result, the little setback last quarter isn't thesis-altering.
