What happened
Shares of Chevron (CVX -3.04%) were on the rise Monday, with the stock rallying as much as 3.4% before settling into a more modest gain of 2.5% by 1:21 p.m. ET.
Chevron will report its full second-quarter results on Friday, but it did release some preliminary earnings figures on Sunday, which exceeded analyst estimates. In addition, the company waived the mandatory retirement age for CEO Mike Wirth, giving the company time to find the right successor. That likely removed a bit of additional uncertainty for the stock and showed a vote of confidence in Wirth's strategy.
So what
On Sunday, Chevron reported that it would earn about $6.01 billion in net income or $5.77 billion in adjusted non-GAAP (generally accepted accounting principles) earnings, equating to $3.08 per share, which would be above the analyst consensus of $2.97.
Although those earnings were almost 50% below last year's blockbuster earnings during the post-Ukraine-invasion oil price spike, the better-than-expected earnings reflect booming production in the U.S. Permian Basin, which surged 11% over last year's Permian production, to 772,000 barrels per day. The company also noted it had record shareholder returns of $7.2 billion, consisting of $2.8 billion in dividends and $4.4 billion in share buybacks. That was actually significantly more than the company earned in free cash flow.
In addition to an expectations beat and generous buybacks, Chevron noted it was extending CEO Mike Wirth's tenure beyond the age of 65, which was the previous self-imposed age limit for Chevron's CEOs. Currently, Wirth is 63, but the announcement seems to take the pressure off of finding a successor quickly and allowing the company to concentrate on finding the right fit.
The extension could also be a vote of confidence in Wirth's continued leadership beyond 2025. Of note, Wirth has overseen Chevron's push into the Permian Basin, which was the source of last quarter's outperformance.
Chevron also announced that CFO Pierre Breber would retire on March 1, 2024, and will be succeeded by CTO Eimear Bonner at that time.
Now what
Some had feared earlier this year that Permian operators would not be as efficient in 2023, as "sweet spot" wells started to underperform toward the end of last year, leaving investors wondering if the Permian would continue to be as low cost and efficient as it had been in the past. However, Chevron reiterated its full-year production target for the Permian, where it expects to eventually grow to produce over 1 million barrels per day and then hold that production steady through 2040.
That should keep the cash flow gushing, as long as oil prices don't fall too far again. Today, oil prices also appreciated over 2%, roughly in line with Chevron's daily gain, reaching nearly $80 per barrel. The reasons were a combination of OPEC's production cuts apparently starting to show up in tight crude supplies, while a failure at rival Exxon's Baton Rouge refinery could also cut into gasoline supplies for several weeks.
Of note, Chevron also returned much more cash to shareholders than it made in free cash flow, highlighting an aggressively shareholder-friendly posture. That is likely not sustainable, but could be a function of working capital and capital spending fluctuations quarter to quarter. As of last quarter, Chevron had roughly $15.8 billion in cash against $23 billion in short- and long-term debt.
