On Wednesday, July 5, Exxon Mobil (XOM) told investors that second quarter earnings could drop by nearly 50% from earnings in the second quarter of 2022.
On Thursday, July 6, shares of Exxon Mobil closed down 3.73%.
Remember, we’re talking about Exxon Mobil here, one gigantic oil company. So while earnings could fall by half in the quarter, the company is still looking at quarterly earnings of $6.2 billion.
The big culprits are falling natural gas prices in the quarter–accounting for $2 billion of the drop and tighter margins. The drop in margins from last year was only to be expected since in the second quarter of 2022 the company benefited from supply chains that we’re disrupted by Russia’s invasion of Ukraine. In 2022 the company reported record profits.
Exxon’s news has implications across the energy sector. As of July 6, Yardeni Research calculated that Wall Street analysts are looking for a year-over-year drop in revenue for the companies in the S&P 500 energy sector of 14.5%. That will produce, analysts say, a 25.6% drop in earnings for these energy companies.
Investors certainly shouldn’t be looking for second quarter earnings from the energy sector to help support what is shaping up as a weak quarter for earnings across all sectors–except technology. On the other hand, the market isn’t really expecting anything very positive from the sector this year so lower year over year revenue and earnings won’t be a surprise. Looking at these numbers, in my opinion, the only reason to own energy shares in the short term, say, the next 6 months, is for the dividend. And even there I’d be looking for oil companies to be taking a hard look at those payments and their cash flow positions for the rest of 2023.
