Buyback blues

1 August 2013 By Christopher Swann

The oil giant is slashing its favorite method of returning cash to investors. That’s smart considering a 19 pct drop in Q2 profit and rising capex. But Exxon’s habit of buying back stock at peak prices suggests this is temporary. It’s an irrational policy the company should drop.

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Exxon Mobil on Aug. 1 reported a second-quarter profit of $6.9 billion, down from $15.9 billion in the same period last year. Excluding a $7.5 billion asset sale last year and other special items, earnings were down 19 percent.
Earnings per share fell to $1.55, down from $3.41. Analysts had forecast earnings per share of $1.90, according to Thomson Reuters I/B/E/S.
Oil and natural gas production fell 1.9 percent. Capital spending was $10.2 billion, up 10 percent from the same period last year.
During the second quarter the company said it purchased 45 million of its own shares at a cost of $4 billion. Exxon said it expected purchases in the third quarter to decline to $3 billion.
During the second quarter of 2012 the company had purchased 60 million shares at a cost of $5 billion, down from $5.7 billion in the preceding quarter.
On the first-quarter earnings call in April, head of investor relations David Rosenthal told shareholders that “the share buyback is strictly a function of cash flows in the quarter and expectations going forward in the quarters, but no change in terms of signal or the way that we approach the allocation of the fund.”

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