Earnings season is upon us again, with 21% of S&P 500 companies reporting earnings for the second quarter of 2022. According to FactSet data, 68% of S&P 500 companies have reported a EPS beat Wall Street estimates, while 65% 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 energy companies’ balance sheets. The sector is expected to grow earnings by 265.3% annually, well above the S&P 500’s combined earnings growth rate of 4.8%.
At the sub-industry level, all five energy sub-industries report (or are expected to report) year-over-year earnings increases of more than 20% with Oil and Gas Refining and Marketing (1,087%), integrated oil. & Gas (251%) and Oil & Gas Exploration & Production (216%) are expected to have the strongest growth.
Meanwhile, the energy sector’s expected 55.9% year-over-year earnings growth is also the highest of any sector, and far better than the S&P 500’s combined growth rate of 10.9%. The energy sector is also beating Wall Street’s earnings expectations by the largest margin (+9%).
But here’s the main reason: According to FactSet, companies that derive more than half of their revenue from foreign markets are clearly outperforming those with minimal international exposure.
This is a great setup for the US oil and gas industry because most of the American majors tick this box.
In fact, oil and gas giants Exxon Mobil (NYSE: XOM ) and Chevron (NYSE: CVX ) are expected to be the biggest contributors to earnings growth and revenue growth among S&P 500 companies with the most exposure to international income.
Exxon Mobil generates 62% of revenue outside the US, while Chevron generates 56% of revenue outside the country. Their contribution to the earnings of this category of companies is so great that FactSet says, “…if they were excluded, the (combined) earnings growth rate of S&P 500 companies generating more than 50% of revenue outside the US would fall to just 0.5% from 10.2%, while the (combined) revenue growth rate of S&P 500 companies generating more than 50% of revenue outside the US would drop from 14.6 % to 9.1%.
Earnings so far from the European giants
In a preview of what’s to come on this side of the Atlantic on Friday, European oil and gas giants hit all sorts of new highs, with investors now expecting some share buybacks and big dividends.
Spain’s Repsol announced earnings early Thursday, showing a fourfold increase in net profit in the second quarter, along with a quadrupling of its net profit and a doubling of first-half net profit, clearly beating analysts’ expectations.
Shell also reported second-quarter record adjusted earnings of $11.5 billion, up from $5.5 billion in the same quarter last year. That’s even well above its first-quarter earnings of $9.1 billion. Now the London-based supermajor plans another $6 billion share buyback because it is flush with cash. Related: Shell and TotalEnergies see risk of rising oil prices
TotalEnergies also just reported an impressive increase in net income, posting $5.7 billion for the second quarter, up 2.6 times from last year’s second quarter, and a doubling of cash flow to 16.3 billion dollars.
Earnings estimates
A list of the hottest stocks on the planet is yet to be reported in the coming days, with Exxon Mobil Corp. and Chevron Corp. scheduled to report on Friday, July 29 before the bell and Marathon Petroleum 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 per share in the second quarter of 2021. Estimize, a crowdsourcing platform that collects estimates from Wall Street analysts, fund managers and company executives. , buy-side analysts, academics and others, expects adjusted earnings of $3.75 per share for Exxon. FactSet estimates Exxon’s Q2 2022 sales at $111.3 billion, good for a 64% increase from Q2 2021’s $67.7 billion, while Estimize expects just under $110 billion of revenue dollars for the quarter.
A significant revenue increase could see Exxon beat its record 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 to adjusted earnings of $1.71 per share in the second quarter of 2021, while Estimize it calls for an EPS of $5.09. FactSet estimates Chevron’s Q2 2022 sales of $58.7 billion, good for a 56% increase from Q2 2021’s $37.6 billion, while Estimize calls for revenue of $58.5 billion.
Analysts forecast second-quarter earnings of $1.21 per share for Marathon, which would represent a staggering 450% year-over-year increase, along with a 78% increase in second-quarter revenue, compared to the same quarter from a year ago
The big question now is: what happens next? This multibillion-dollar boom, the second major quarterly win for big oil, is taking place against a backdrop of global turmoil that has seen oil prices fluctuate wildly.
“When earnings are released, it’s less about what happened looking back than it is about future 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” is very important here. The big gains have shaken markets out of their gloomy approach to the recession, but it’s still the elephant in the room.
For the second quarter in a row, the US economy shrank amid rising inflation and interest rate hikes, the latest 75 basis point hike by the Fed coming on Wednesday.
US GDP contracted at a pace of 0.9% (seasonally adjusted, annual) between April and June, according to data released on Thursday by the US Commerce Department. It was the second consecutive decline, with the previous contraction of 1.6%.
It’s not a recession, but economists are worried about what will happen in the middle of next year if growth continues to slow as inflation hits a 40-year high and the Fed continues its aggressive rate-hike path .
By Alex Kimani for Oilprice.com
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