Chevron Corporation (NYSE:CVX) suffered a steep decline in revenue and profits last quarter, which came as a surprise to nobody. The approximately 50% collapse in West Texas Intermediate crude oil prices from the 2014 peak to the recent lows was bound to bring down Chevron's earnings numbers.
Still, Chevron management wants investors to know that the company is still profitable, has a lot of high-quality assets around the world, and is looking forward to better days ahead. Here are five key takeaways from Chevron's latest earnings conference call.
A tough quarter, but it could have been worse
Excluding gains from asset sales, foreign exchange effects and other special items, earnings were $0.76 per diluted share or $1.4 billion. This is a better outcome than the decline in commodity prices would have implied. -- Pat Yarrington, CFO
Considering how far oil fell, Chevron's performance is quite admirable. Chevron's headline earnings per share clocked in at $2.5 billion, which represented a massive 43% decline. Still, Chevron easily beat analyst expectations, earning $1.37 in diluted earnings per share for the first quarter versus analyst expectations of $0.79. The company remained strongly profitable, kept paying dividends, and actually saw very good results on the downstream side of the business.
The benefits of the integrated model
Downstream results increased by over $700 million, primarily driven by stronger worldwide refining and marketing margins. Operationally, first quarter results were among the very best we've had in several years. -- Yarrington
As an integrated major, Chevron operates an upstream exploration and production business, as well as a downstream refining business. The biggest benefit of this model is that it allows for balance. When oil prices decline, refining feedstock costs fall, which boosts profitability on the downstream side.
This helped Chevron beat estimates last quarter. Downstream profits more than doubled, year over year, to $1.4 billion.
Asset sales help raise cash
We are making excellent progress on our asset sales... In the quarter, proceeds from asset sales totaled approximately $950 million, the majority of which related to the sale of our interest in multiple offshore and onshore leases in Nigeria. -- Yarrington
In an attempt to raise cash to help support Chevron's hefty 3.8% dividend, the company is aggressively selling off assets deemed non-critical to the future. For example, Chevron will realize approximately $4 billion in divestments over the first four months of this year, after shedding $6 billion in assets last year. Aside from asset sales, Chevron is also cutting capital expenditures this year to raise even more cash. Capital spending will total $35 billion this year, a 13% reduction from 2014.
Chevron is optimistic about what the future holds
Major capital project ramp-ups at Jack/St. Malo and Tubular Bells in the Gulf of Mexico and from the expansion of the Bibiyana Field in Bangladesh, increased production by 42,000 barrels per day. -- Jeff Gustavson, General Manager, Investor Relations
It's very difficult to be positive about the oil and gas industry right now. But Chevron management is looking beyond the current troubles to see the light at the end of the tunnel. Despite the fact that profits are falling off a cliff, Chevron still has some major projects that will meaningfully boost production going forward. In the near term, the Gulf of Mexico projects are quickly ramping up and adding to current production.
Longer term, the Gorgon and Wheatstone liquefied natural gas, or LNG, projects in Australia represent arguably Chevron's most important upstream projects going forward. Last quarter, Chevron started up the first gas turbine generator at the Gorgon project. The Gorgon Project includes a 15.6 million tonnes-per-annum liquefied natural-gas facility. At Wheatstone, Chevron successfully installed the topside for the offshore production. These two facilities are situated perfectly to serve the growing energy demand in emerging markets in Asia.
Dividend remains secure
During the first quarter, we paid $2 billion in dividends. Earlier in the week, we announced a dividend of $1.07 per share payable to shareholders of record as of May 19. We currently yield about 3.8%. -- Yarrington
Without a doubt, Chevron's dividend is very important to shareholders. Chevron is a Dividend Aristocrat, meaning it has raised its payout for at least 25 consecutive years. Prior to earnings, Chevron had gone a full year without increasing its distribution, meaning it was due for a bump. But Chevron held its dividend steady, at $1.07 per share. It's likely management was content with the current dividend, because the company is already stressed due to the very difficult environment. And, a 3.8% yield is well above the market average already.
The Foolish bottom line
Chevron deciding not to increase its payout could worry investors, as does the plunge in commodity prices. But it's important to remember that Chevron still covered its dividend with underlying earnings, even in a horrible operating climate. This should remind investors that the dividend is secure. And as far as a raise, Chevron still has until the end of this year to increase its distribution, and keep its status as a Dividend Aristocrat.
In addition, commodity prices are already recovering, which could mean that future quarterly results won't be as ugly as last quarter. Along with continued progress in its huge upstream projects, this will help Chevron secure its future.