ExxonMobil (XOM +1.95%) technically missed Wall Street's expectations for the second quarter. Adjusted earnings came in at $3.52 per share, just below the consensus estimate of $3.60. That was enough to trigger a negative reaction. But focusing only on the earnings miss overlooks what was arguably one of ExxonMobil's strongest operating quarters in years.
The company reported $14.5 billion in earnings and $14.7 billion in adjusted earnings, its highest quarterly earnings in roughly four years. ExxonMobil also generated $23.6 billion in cash flow from operations and $17.2 billion in free cash flow, giving it plenty of room to continue investing in growth while returning cash to shareholders.
Operations continue to improve
Perhaps the most encouraging numbers weren't on the income statement at all. Exxon delivered its highest upstream production in more than two decades, excluding temporary Middle East disruptions. Production in the Permian Basin reached a record 1.8 million barrels of oil equivalent per day, while the company's fifth floating production vessel for Guyana is scheduled to begin operations in the fourth quarter, adding another 250,000 barrels per day of production capacity.
The downstream business also performed well. Exxon reported record diesel production, helping offset refinery maintenance earlier in the year. Chemical products earned $1.13 billion, while the Energy Products segment rebounded sharply to $5.47 billion after posting a loss during the previous quarter.
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All about the cash
One reason Exxon continues separating itself from many competitors is its ability to generate cash across a wide range of commodity prices. During the quarter, the company returned $9.4 billion to shareholders through $4.3 billion in dividends and $5.1 billion in share repurchases. It also reduced net debt by approximately $7 billion, further strengthening an already healthy balance sheet.
NYSE: XOM
Key Data Points
Meanwhile, management continues investing heavily in future production. Year-to-date capital expenditures reached $13 billion, supporting growth in the Permian Basin, Guyana, LNG projects, and higher-value chemical businesses. Exxon also says its cumulative structural cost savings have now reached $16.3 billion, exceeding the combined savings reported by its international oil major peers.
Looking beyond one quarter
The earnings miss largely reflected factors that were difficult for analysts to model, including volatile commodity prices, refinery maintenance, and temporary production disruptions in the Middle East. CFO Neil Hansen said the company's underlying business remained strong despite those short-term headwinds.
Quarterly earnings estimates can fluctuate by a few cents for any number of reasons. But production growth, free cash flow, balance-sheet strength, and capital allocation are much better indicators of long-term performance. And Exxon appears to be executing well on all four.
The company continues to expand production from some of the world's lowest-cost oil assets, generate significant cash flow, reduce debt, and return billions of dollars to shareholders. Those are the numbers that ultimately determine long-term value. Yes, the earnings miss may have spooked some investors, but the company's underlying operating performance remains solid.
