Chevron Corporation (CVX) posted weaker-than-expected fourth-quarter 2009 earnings, pulled down by sharply lower downstream results on the back of depressed refining margins. This was partially offset by higher commodity prices and growing production in its upstream segment.
Earnings per share (excluding foreign-currency effects) came in at $1.57, below the Zacks Consensus Estimate of $1.69. Compared to the fourth quarter of 2008, Chevron’s adjusted earnings per share fell 17.4% (from $1.90 to $1.57). However, quarterly revenue of $48.7 billion was up 7.7% from the year-earlier level, driven by robust E&P results.
Reported Quarter vs. Estimate Revisions Trend
Chevron’s quarterly miss didn’t come as a major surprise. Though there were no estimate revisions in either direction over the last 7 days, earnings estimates for the company have been trending slightly down over the past month, with the quarterly Zacks Consensus Estimate going down by a penny. Overall, 8 out of the 15 analysts covering the stock pulled back on fourth quarter projections during that time, while 3 raised their estimates.
With respect to earnings surprises, Chevron has had a bearish run over the last four quarters (including the quarter under discussion). This is the company’s 3rd negative surprise in the past 4 quarters.
Upstream Earnings Increase
Chevron’s total production of crude oil and natural gas increased 9.4% from the year-earlier level to 2.8 million oil-equivalent barrels per day (MMBOE/d), driven by new project start-ups (in the U.S. and Nigeria), expansion of capacity at Tengiz in Kazakhstan, together with the restoration of Gulf of Mexico volumes that were offline in the fourth quarter of 2008 due to hurricanes.
U.S. volumes rose more than 21%, while Chevron’s international operations experienced an approximately 6% rise in output. Gains on the production front were supported by higher realized oil prices, resulting in a 27% year-over-year rise in upstream earnings to $4.0 billion.
Production Outlook Remain Strong
Chevron’s production outlook remains one of the most robust in its peer group, with a number of major deepwater projects scheduled to come online during the next few years. Major start-ups during the last few months include the Tahiti Field in the Gulf of Mexico, Frade offshore Brazil and Tombua-Landana in Angola.
Downstream Affected by Weak Refining Margins
Chevron’s downstream segment lost $613 million during the quarter, as against profit of $2.1 billion in the previous-year period. Demand for refined products remained depressed in the face of plentiful supply, resulting in weak margins on the sale of gasoline and other refined products.
The results were also affected by decreased refinery crude-input in the company’s U.S. operations, primarily due to the planned shutdown at the facility in El Segundo, California.
Chemicals
Earnings in the chemicals business increased significantly (by 250.0%) year-over-year to $98 million, reflecting higher margins on the sale of lubricant and fuel additives in tandem with lower utility and manufacturing costs.
Capital Expenditure & Balance Sheet
Chevron spent $6.2 billion in capital expenditures during the quarter (bringing the total capex for the full year 2009 to $22.2 billion), down from the year-earlier period’s 7.0 billion. Approximately 73% of the total outlays pertained to upstream projects. At the end of the quarter, the company had $8.7 billion in cash and long-term debt of $10.5 billion, with a debt-to-total capitalization ratio of about 10.3%.
Read the full analyst report on “CVX”
Zacks Investment Research
