Ahead of the Tape: Exxon Still Has Fuel in Its Tank -- WSJ

By Steven Russolillo 

If crude oil's steep selloff has taught anything, it is that no energy company is immune from it -- not even industry stalwart Exxon Mobil Corp.

The energy giant lost a badge of honor on Tuesday when it was stripped of its coveted triple-A credit rating. Standard & Poor's cited concerns about Exxon increasing its borrowing to keep up with its capital-return program.

But Exxon marches to the beat of its own drummer, announcing a day later that it would boost its quarterly dividend by 3%. Typically a footnote, the timing of the announcement was poignant.

For one, it maintains Exxon's status in the S&P 500 dividend aristocrats -- the select companies that have raised dividends every year for the past 25 years. And in an environment where energy companies are battening down the hatches, a boosted dividend holds that much more cachet.

Exxon's first-quarter results, due Friday, should show its confidence doesn't stem from a financial turnaround just yet. Analysts polled by FactSet expect net income of $1.29 billion, down 74% from a year earlier. Exxon hasn't logged a quarterly profit below $2 billion since 1999, right before its merger with Mobil was completed.

That has forced a lot of belt-tightening, but not as much as one might expect. Exxon plans to cut capital expenditures by 25% this year and put buybacks on hold. That is a sharp shift in strategy considering it spent more on buybacks than dividends from 2004 through 2014. Just this century it has reduced its share count by around 40%. But it has cut investment less sharply than it could have, a hallmark of Exxon's consistency across good and bad cycles.

The brutality of the current market has prompted Exxon's debt to more than triple since 2012 -- a factor spurring the downgrade. Of course AA+ is nothing to sneeze at, particularly if oil prices have actually bottomed. The first quarter could mark Exxon's earnings trough.

Investors seem to approve of the way Exxon has handled the washout. Exxon has outperformed all of its integrated peers handsomely over the past year, including Chevron Corp., which also reports on Friday.

This tiger still has more room to run.

Write to Steven Russolillo at [e-mail]

(END) Dow Jones Newswires

April 29, 2016 02:47 ET (06:47 GMT)

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