Why Has ExxonMobil Stock retreated After Earnings?

Today, ExxonMobil’s stock price retreated despite what appeared to be good earnings news. Investors are still wary even if the oil giant exceeded revenue projections ($83.1 billion vs. $73.2 billion) and analyst goals for earnings per share ($2.06).

Some investors may still feel discouraged following ExxonMobil’s earnings report. This is mainly because of the report’s contradictory signals. The stock’s decline is a reflection of worries about declining earnings, deteriorating market circumstances, and potential pressure on future free cash flow. Even though ExxonMobil has a low P/E ratio—less than 14—some analysts nevertheless advise dumping the company.

Why the market reacted negatively:

The whole story is not fully told by earnings. Exxon’s profits decreased by 28% on an annual basis when measured using generally accepted accounting rules, or GAAP, a more comprehensive accounting metric. This decline, together with a 26% loss in earnings per share in spite of stock buybacks, casts doubt on the underlying financial stability of the corporation.

Low natural gas prices and shrinking refining margins have an effect on Exxon’s earnings. These components highlight the company’s vulnerability to shifts in the marketplace. Still, there are a few positive aspects; including the sound free cash flow. ExxonMobil’s free cash flow for the quarter ($10.1 billion) was significantly larger than the company’s stated profits. This metric provides some solace because it’s widely regarded as a more reliable indicator of a company’s financial health.

ExxonMobil frequently faces the free cash flow imbalance. The business has historically produced impressive earnings reports, but these haven’t always been accompanied by commensurate free cash flow. Although there has been improvement in the Q1 report, expected capital expenditures of $25 billion, the most in a decade, may put further pressure on this data.