By Alex Kimani
- The energy industry is, by a wide margin, posting the strongest earnings numbers on Wall Street.
- At the sub-industry level, all five energy sub-industries are reporting a year-on-year increase of more than 20%.
- Oil and gas refining and marketing saw the strongest performance of all subsectors in energy.
Earnings season is here with us once again, with 21% of S&P 500 companies having reported second-quarter 2022 earnings. According to FactSet data, 68% of S&P 500 companies have reported EPS above Wall Street estimates, while 65% have beat revenue expectations.
The Energy sector is expected to be the best performer this earnings season, thanks to high oil and gas prices massively improving the balance sheets of energy companies. The sector is expected to post earnings growth of 265.3% Y/Y, far above the S&P 500's blended earnings growth rate of 4.8%.
At the sub-industry level, all five energy sub-industries are reporting (or are predicted to report) a year-over-year increase in earnings of more than 20% with Oil & Gas Refining & Marketing (1,087%), Integrated Oil & Gas (251%), and Oil & Gas Exploration & Production (216%) expected to post the strongest growth.
Meanwhile, the energy sector's expected revenue growth clip of 55.9%Y/Y is also the highest of any sector, and way better than the S&P 500's blended growth rate of 10.9%. The energy sector is also beating Wall Street's revenue expectations by the biggest margin (+9%).
But here's the main kicker: according to FactSet, companies that derive more than half of their revenues in foreign markets are soundly outperforming those with minimal international exposure.
That's a great setup for the U.S. oil and gas industry because most American supermajors tick this box.
Indeed, oil and gas giants Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) are expected to be the largest contributors to earnings growth and revenue growth for S&P 500 companies with more international revenue exposure.
Exxon Mobil generates 62% of revenues outside the U.S., while Chevron generates 56% of revenues outside the country. Their contribution to earnings for this category of companies is so large that FactSet says, "…if they were excluded, the (blended) earnings growth rate for S&P 500 companies that generate more than 50% of revenues outside the U.S. would fall to just 0.5% from 10.2%, while the (blended) revenue growth rate for S&P 500 companies that generate more than 50% of revenues outside the U.S. would fall to 9.1% from 14.6%."
Earnings so far from the European giants
In a preview of what is to come on Friday on this side of the Atlantic, European oil and gas giants have broken all kinds of new records, with investors now awaiting some significant share buybacks and dividends.
Spanish Repsol (OTC:REPYY) reported earnings early Thursday, showing a 4X surge in net profit for Q2, along with a quadrupling of its net income and a doubling of first-half net profit, soundly beating analyst expectations.
Shell (NYSE:SHEL) has also reported record Q2 adjusted earnings of $11.5 billion, up from $5.5 billion in the same quarter last year. That's even far above its Q1 earnings of $9.1 billion. Now, the London-based supermajor is planning another $6-billion share buyback because it's loaded with cash.
TotalEnergies (NYSE:TTE) also just reported an impressive rise in net income, booking $5.7 billion for Q2–2.6 times higher than Q2 last year–and a doubling of cash flow to $16.3 billion.
Earnings Estimates
A lineup of the hottest stocks on the planet are still to report in the coming days, with Exxon and Chevron scheduled to report on Friday, July 29 before the bell and Marathon Petroleum (NYSE:MPC) to report next week.
Exxon Mobil has seen its Wall Street consensus EPS revised to $3.84 from $3.03, which compares well with adjusted earnings of $1.10 a share in the second quarter of 2021. Estimize, a crowdsourcing platform that gathers estimates from Wall Street analysts, fund managers, company executives, buy-side analysts, academics, and others, is expecting an adjusted profit of $3.75 a share for Exxon. FactSet estimates Q2 2022 sales of $111.3 billion for Exxon, good for a 64% increase from $67.7 billion in the second quarter of 2021, while Estimize is expecting slightly less at $110 billion in revenue for the quarter.
A sizable revenue beat might see Exxon break its record for quarterly revenue when it posted $112 billion in the third quarter of 2021.
Chevron has seen its Wall Street consensus EPS revised to $5.08 from $4.71, which also compares well with adjusted earnings of $1.71 a share in the second quarter of 2021, while Estimize calls for EPS of $5.09. FactSet estimates Q2 2022 sales of $58.7 billion for Chevron, good for a 56% increase from $37.6 billion in the second quarter of 2021, while Estimize calls for revenue of $58.5B.
Analysts are eyeing Q2 earnings of $1.21/share for Marathon, which would mean an astounding 450% YoY increase, along with a 78% jump in revenues for Q2, compared to the same quarter a year ago.
The big question now is: What happens next? This multibillion-dollar boom–the second major quarterly victory for big oil–is happening against a backdrop of global turmoil that has seen oil prices fluctuate wildly.
"When earnings are released, it's less about what happened backward looking than it is about forward looking stocks, or stories about the future," Leah Hartman, chair of finance, accounting and marketing at the University of New Haven, told the Houston Chronicle.
The word "recession" looms large here. Big earnings have shaken the markets out of their gloomy focus on recession, but it's still the elephant in the room.
For the second straight quarter, the U.S. economy has shrunk amid surging inflation and interest rate hikes, the latest 75-basis-point hike from the Fed hitting on Wednesday.
U.S. GDP contracted at a rate of 0.9% (seasonally adjusted, annual) for April-June, according to data released by the U.S. Department of Commerce on Thursday. It was the second straight decline, with the previous contraction at 1.6%.
It's not a recession, but economists are worried about what happens by the middle of next year if growth continues to slow as inflation hits a 40-year high and the Fed continues on its aggressive rate-hike path.