Exxon Mobil and Chevron Report Earnings on Friday. What to Expect. - Barron's

Exxon Mobil and Chevron report earnings Friday in the midst of a bleak period for energy stocks. Most oil and gas names plunged on Thursday, because the road back to “normal” from the past few months is likely to be more complicated than investors had initially hoped.

Both companies are expected to report losses for the second quarter. Analysts see Exxon (ticker: XOM) losing 62 cents per share and Chevron (CVX) losing 93 cents. Exxon already released a broad outline of its earnings that projected losses in both its refining and production businesses.

But some reports indicate that Exxon may have to take more dramatic action soon to protect its dividend. The company is planning to make layoffs and cut more spending, Reuters reported on Thursday, though the company denied the reports. Exxon’s cash flow doesn’t cover its dividend, and investors worry that the company will have to reduce the dividend to help its balance sheet. The stock’s dividend yield is 8.3%.

SunTrust Robinson Humphrey analyst Welles Fitzpatrick writes that Exxon can probably stave off a dividend cut by reducing capital expenditures more and selling assets. It might also be able to right the ship by reducing its corporate overhead.

“We continue to believe that significant capex cuts could reposition Exxon to be able to cover its dividend with minimal debt additions,” he writes.

Chevron is in a comparatively better position, though it is facing similar challenges. The company announced last week that it will buy Noble Energy (NBL), grabbing considerable new acreage at a relative discount. But Chevron’s stock has stalled in recent weeks, as investors question whether its relative outperformance is justified. Chevron has holdings all over the world, but it relies on U.S. production for its growth and needs oil prices to continue rising to $50 and above. West Texas oil futures have been stalled around $40 for more than a month, and futures traders don’t see them getting out of that range over the next several months. Analysts will be paying attention to Chevron’s commentary on U.S. activity.

“Aside from the typical interest in sources and uses of cash (and in particular, Chevron’s ability to sustain its dividend), we will be interested to hear more on activity levels in the Permian Basin and Williston Basin, as these are the primary U.S. operating regions for Chevron’s pending acquisition target Noble Energy,” wrote CFRA analyst Stewart Glickman.

Write to Avi Salzman at avi.salzman@barrons.com

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