We are still in the early innings of the earnings season with only a third of S&P 500 having reported Q4 2023 results. Overall, the blended earnings decline for the entire S&P 500 for Q4 2023 is clocking in at -1.4%; however, that number does not paint an accurate picture of the actual state of the market. According to FactSet data, six of the seven companies in the “Magnificent 7” namely Nvidia Inc. (NASDAQ:NVDA), Amazon Inc. (NASDAQ:AMZN), Meta Platforms (NASDAQ:META), Alphabet Inc. (NASDAQ:GOOG), Microsoft Corp. (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL) have done most of the heavy lifting for the S&P 500. The six companies have reported combined earnings growth of 53.7%; the remaining 494 companies in the index are expected to report a blended earnings decline of -10.5%. EV maker Tesla Inc. (NASDAQ:TSLA) is the sole exception among the Magnificent 7 after reporting a huge Q4 2023 earnings decline to the tune of -40%.
The energy sector has been the focus of the market this week with U.S. oil and gas giants Exxon Mobil Corp. (NYSE:XOM) and Chevron Corp. (NYSE:CVX) returning their fourth quarter scorecards on Friday. Exxon Mobil reported Q4 Non-GAAP EPS of $2.48, $0.27 better than the Wall Street consensus but Q4 2023 revenue of $84.34B (-11.6% Y/Y) missed by $4.48B. Fourth quarter GAAP earnings clocked in at $7.63B, a big Y/Y drop from $12.75B reported for Q4 2022. Capital and exploration expenditures for the full year came in at $26.3 billion, slightly above the top end of the guidance range due to accelerated activities in the Permian and Guyana assets as well as the company’s new lithium business. For the full year, Exxon delivered industry-leading earnings of $36.0 billion, generated $55.4 billion of cash flow and distributed $32.4 billion to shareholders. Full-year, net production was 3.7M boe/day, in line with the previous year; Permian and Guyana combined production grew 18% compared with 2022. Related: Iraq Wants to Ditch the U.S. Dollar in Oil Trade
Chevron’s report followed a similar trajectory to its bigger peer. Q4 Non-GAAP EPS of $3.45 beat by $0.23 but revenue of $47.18B (-16.5% Y/Y) missed by $6.02B. Fourth quarter GAAP earnings clocked in at $2.26B, a big drop from $6.53B reported for Q4 2022. For the full-year, earnings came in at $21.37B, good for a 40%bY/Y drop. Cash returned to shareholders totaled over $26 billion for the year, 18% Y/Y higher, and annual worldwide net oil-equivalent production increased to over 3.1 million boe, led by 14% growth in the United States. Chevron added ~980 million barrels of net oil-equivalent proved reserves in 2023. Meanwhile, full-year capex was up 32% Y/Y primarily due to higher investments in the United States.
Energy Sector Lags The Market, Again
Overall, the energy sector is expected to report -31.4% earnings decline for the fourth quarter, the worst among the market’s 11 sectors. At the sub-industry level, three of the sector’s five sub-industries are reporting earnings contraction: Oil & Gas Refining & Marketing (-63%), Integrated Oil & Gas (-34%), and Oil & Gas Exploration & Production (-20%). On the other hand, Oil & Gas Equipment & Services (23%) and Oil & Gas Storage & Transportation (4%) are reporting positive earnings growth.
Lower oil and gas prices have been the biggest contributor to the year-over-year decrease in earnings for the energy sector. The average price of oil (WTI) in Q4 2023 ($78.53) was 5% below the average price for oil in Q4 2022 ($82.64). Looking ahead, Wall Street is predicting inconsistent earnings growth for the sector. For Q1 2024 and Q3 2024, analysts have forecast earnings declines of -24.0% and -7.4%, respectively. However, analysts are calling for earnings growth of 7.4% and 5.3% for Q2 2024 and Q4 2024, respectively.
“The US energy market enters 2024 on unstable footing after commodity pricing for both oil and gas fell significantly in 2023. The focus of public E&Ps on moderate production growth and shareholder returns is likely to continue in a low commodity price environment, especially if the cost of oilfield services continues to feel inflationary pressure. Despite recent cold weather, the outlook for US gas pricing remains bearish with limited upside for Henry Hub pricing until new structural LNG demand materializes at year-end. Oil pricing is projected to be similarly weak with OPEC production cuts struggling to offset sluggish global demand growth. Geopolitical tensions present upside risk for oil pricing in the short term, although companies with large international production exposure could face additional difficulties if conflicts in the Middle East and South America expand,” FactSet’s Connor McLean has said.
By Alex Kimani for Oilprice.com
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