(CVX) Chevron Tops Consensus With Plunging Earnings

November 1st, 2009

Chevron Corporation (CVX) posted significantly better-than-expected third-quarter 2009 earnings, driven by robust upstream volumes and cost cutting initiatives. Earnings per share (excluding gains from asset sales and tax items, as well as foreign-currency effects), came in at $1.80, well above the Zacks Consensus Estimate of $1.42.

However, compared to the third quarter of 2008, Chevron’s adjusted earnings per share plunged 51.5% (from $3.71 to $1.80), while revenue declined 40.9% to $46.6 billion, reflecting lower commodity prices and weak refining environment.

Upstream Earnings Plummet: Increased Volumes Offset by Lower Prices

Chevron’s total production of crude oil and natural gas increased 10.6% from the year-earlier level to 2.7 million oil-equivalent barrels per day (MMBOE/d), driven by new project start-ups, together with the restoration of Gulf of Mexico volumes that were offline in September 2008 due to hurricanes.

Partly offsetting these positives were factors such as the effect of civil unrest in Nigeria. U.S. volumes rose more than 15%, while Chevron’s international operations experienced an approximately 9% rise in output.

Gains on the production front were offset by lower realized oil and natural gas prices, resulting in a roughly 41% year-over-year drop in upstream earnings to $3.6 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 later this year. Major start-ups during the last few months include Tahiti in the Gulf of Mexico, Frade offshore Brazil and Tombua-Landana in Angola.

Downstream Segment Affected by Weak Refining Margins

Chevron’s downstream segment earned $194 million during the quarter, a steep fall from $1.8 billion in the previous-year period. Demand for refined products continued to remain 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 Richmond, California.

Chemicals

Earnings in the chemicals business increased 134.3% year-over-year to $164 million, reflecting higher margins on the sale of lubricant and fuel additives in tandem with lower utility costs.

Capital Expenditure & Balance Sheet

Chevron spent $4.6 billion in capital expenditures during the quarter, down from last year’s 5.5 billion. Approximately 73% of the total outlays pertained to upstream projects. At the end of the quarter, the company had $7.6 billion in cash and long-term debt of $10.5 billion, with a debt-to-total capitalization ratio of about 10.4%.

Zacks Investment Research
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