U.S. energy giant Chevron Corp. ( CVX )
reported better-than-expected second quarter 2012 earnings on the
back of higher refining margins. Earnings per share (excluding
adjustments for foreign-currency effects) came in at $3.56,
handsomely above the Zacks Consensus Estimate of $3.23.
However, the integrated supermajor's per share adjusted profits
came lower than the second quarter 2011 level of $3.89 amid a drop
in volumes and crude prices.
Quarterly revenue decreased by 9.2% year-over-year - from
$68,948.0 million to $62,608.0 million - and was 8.6% below our
Upstream: Chevron's total production of crude
oil and natural gas decreased 2.6% from the year-earlier level to
2,624 thousand oil-equivalent barrels per day (MBOE/d). Volume
gains in Thailand, U.S. and Nigeria were more than offset by normal
field declines, the shut-in of the Frade deepwater field in Brazil,
downtime associated with maintenance activities, and asset
The U.S. output dipped 5.0% year over year, while Chevron's
international operations (accounting for 75% of the total)
experienced a 1.8% decline in volumes. Losses on the production
front were accompanied by depressed crude and North American gas
prices, resulting in an 18.2% year over year drop in upstream
earnings to $5,620.0 million.
Despite the slight dip in Chevron's quarterly volumes, we
believe its production outlook remains one of the most robust in
its peer group, with a number of major initiatives scheduled to
come online during the next few years. Major start-ups during the
last few months include the deepwater Usan project in Nigeria and
the Caesar/Tonga project in the deepwater Gulf of Mexico.
Downstream: Chevron's downstream segment's
earnings jumped to $1,881.0 million during the quarter, from
$1,044.0 million in the previous-year period. The improvement can
primarily be attributed to wider profit margins on refined products
and the sale of its South Korean assets.
Capital Expenditure, Balance Sheet & Share
The second-largest U.S. oil company by market value after
ExxonMobil Corp. ( XOM )
spent $7,826.0 million in capital expenditures during the quarter.
Approximately 90% of the total outlays pertained to upstream
As of June 30, 2012, the San Ramon, California-based company had
$21,209.0 million in cash and total debt of $10,231.0 million, with
a debt-to-total capitalization ratio of about 7.3%. As part of the
stock repurchase program announced in 2010, Chevron repurchased
$1,250.0 million worth of shares in the June quarter.
Recommendation & Rating
Chevron is one of the largest integrated energy companies in the
world and has an impressive business model. Its current oil and gas
development project pipeline is among the best in the industry,
boasting large, multiyear projects. Additionally, Chevron possesses
one of the healthiest balance sheets among peers, which helps it to
capitalize on investment opportunities with the option to make
However, due to its integrated nature, Chevron is particularly
susceptible to downside risk from any weakness in the global
economy. We are also concerned by the company's high level of
capital spending, which may result in reduced returns going
As such, we see the stock performing in line with the broader
market and maintain our long-term Neutral recommendation, supported
by a Zacks #3 Rank (short-term Hold rating).
CHEVRON CORP (CVX): Free Stock Analysis Report
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