Upcoming Earnings: Oil Supermajors Chevron And ExxonMobil To Report Friday Morning

Despite some volatility over the past few months, the price of crude oil has continued to recover in 2018, giving the energy sector a much needed boost after several years of depressed prices. Thanks to that recovery, analysts are expecting strong top and bottom-line growth when Chevron Corporation CVX and Exxon Mobil Corporation XOM report before market open on Friday, July 27. 

Overall, it seems like supply and demand are balancing more in 2018. The slight rise in U.S. oil inventories earlier this month didn’t last. Stockpiles fell more than 6 million barrels last week to the lowest level in several years, the Energy Information Administration (EIA) reported Wednesday. This tends to be peak use time in the U.S., so a drop in supplies isn’t too surprising. However, the draw in gasoline supplies did slow a bit from the previous week.  

Oil has been trading in a pretty tight range for a while now, pulled back and forth amid possible supply disruptions from Venezuela and Iran but also by record U.S. production, which hit 11 million barrels a day this month for the first time ever. As U.S. production has increased, pipeline bottlenecks have been reported by companies operating in the Permian Basin, which could have varied impacts on different companies if they haven’t secured transportation. 

OPEC is still an area of uncertainty on the supply side, as the group has started to increase production recently after extended cuts. 

Natural gas prices have also recovered a bit from their February lows, although they’ve been trending down overall since the start of 2017, outside of a few typical price spikes in the winter.  

Chevron Earnings and Options Trading Activity

For Q2, CVX is expected to report adjusted EPS of $2.07 on revenue of $45.59 billion, according to third-party consensus analyst estimates. In the same quarter last year, CVX earned $0.87 per share on revenue of $34.48 billion. 

When CVX reported Q1 results, revenue grew 12.5 percent year over year to $36 billion. Earnings in the company’s Upstream segment increased 120.9 percent year over year to $3.35 billion, driven by better prices and greater production, according to management. During Q1, CVX’s worldwide production was 2.85 million barrels per day, up from 2.68 million in Q1 2017. 

Management indicated that oil and gas production had started to ramp up, particularly at its Gorgon and Wheatstone LNG projects in Australia, and at its shale developments in the Permian Basin in the U.S. 

In Q1, CVX’s Downstream segment weighed on results and earnings in the segment decreased 21.4 percent year over year to $728 million, which management primarily attributed to lower margins on refined product sales. Analysts have said they’re again expecting the Downstream segment to impact this quarter’s results.  

Despite the recovery in oil prices, analysts have said they’re expecting many companies in the energy sector to continue to maintain cost discipline and not ramp up capital expenditures too quickly. 

CVX hiked its quarterly dividend by four cents to $1.12 at the start of the year, and has a current yield of about 3.6 percent. 

Chevron in 2018. After a strong run in 2017, CVX has taken a bit of a breather in 2018 and is down about 2 percent so far this year. The stock hit a new 52-week high of $133.88 in January, which wasn’t too far from its all-time high of $135.10 the stock hit in mid-2014. Chart source: thinkorswim^® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Around the upcoming earnings release, options trader have priced in a 2.3 percent stock move in either direction, according to the Market Maker Move indicator on the thinkorswim^® platform. Implied volatility was on the lower end at the 39th percentile as of this morning.

In recent trading at the July 27 weekly expiration, volume has been higher on the call side, but there hasn’t really been much activity that stands out for both calls and puts. Overall, trading has been spread out across a range of strikes mostly around the money. The same was true for the next several weekly expirations.

Looking further out at the August 17 monthly expiration, calls have been active at the 125 strike price, with a decent amount of trading at the 130 strike as well. Volume on the put side has been lighter, with most of the activity at the 124 and 125 strikes.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

ExxonMobil Earnings and Options Trading Activity

When XOM reports, adjusted EPS is expected to come in at $1.24 and revenue at $72.58 billion, according to third-party consensus analyst estimates. In the same quarter last year, XOM reported adjusted EPS of $0.78 on revenue of $62.88 billion.

In Q1, XOM reported that production had decreased 6 percent year over year to 3.9 million barrels. XOM has reported production declines in eight out of the past 10 quarters. Still, the Upstream segment generated $3.5 billion in earnings, up from $2.25 billion in Q1 2017. That increase was almost entirely driven by higher prices, according to management.

One of the reasons for XOM’s recent decline in production was the devastating earthquake in Papua New Guinea. Management originally said they expected to be able to return to full production by May, but analysts have said they expect the impact from the earthquakes to pressure results in the second quarter.

XOM reported that earnings in its Downstream and Chemical Segments were both down 15.8 percent year over year, driven by lower margins on some products and higher expenses, according to the company. Analysts have said they expect similar trends to persist in Q2.

XOM hiked its quarterly dividend payment by five cents to $0.82 per share. Its current yield is about 3.9 percent. 

Climbing Back Up. After a quick drop at the start of the year, XOM has trended upwards, trading within a narrower channel. So far this year, the stock is down 1.3 percent year to date, lagging the S&P 500’s (SPX) 5 percent increase. Chart source: thinkorswim^® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Options traders have priced in a 2 percent stock move in either direction around XOM’s upcoming earnings release, according to the Market Maker Move indicator. Implied volatility was at the 47^th percentile as of this morning.

In short-term trading at the July 27 weekly expiration, calls have been active at the 83.5 and 84 strike prices, while puts have been active at the 82 and 82.5 strikes, pretty much surrounding where the stocks been trading these past few weeks.

At the August 17 monthly expiration, trading on the call side has been concentrated at the 85 strike price. On the put side, trading has been heavier at the 80 and 82.5 strikes. 

What’s Coming Up

Caterpillar Inc. CAT kicks things off next week with its earnings report before the open on Monday, July 30. Some of the other reports on tap include Apple Inc. AAPL after the close Tuesday, July 31; Tesla Inc. TSLA after the close on Wednesday, August 1; and MGM Resorts International MGM before the open Thursday, August 2, with Activision Blizzard Inc. ATVI scheduled after the close the same day. 

The Fed’s July meeting is also coming up July 31 to August 1, and July’s employment report is due out in the morning on Friday, August 3. So there’s a lot coming up to consider keeping an eye on. For a look at what else is going on, check out today’s Market Update if you have time.