Exxon profit soars, but misses forecasts

No. 1 U.S. oil company's profit and revenue miss estimates, even as it posts second-largest earnings total on record.

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By Steve Hargreaves, CNNMoney.com staff writer


NEW YORK (CNNMoney.com) -- Record oil prices netted Exxon Mobil a $10.89 billion profit in the first three months of the year, sharply higher than a year earlier but short of Wall Street estimates and below what was needed to set a new all-time profit record.

The profit was still enough to be the second-highest U.S. corporate profit on record, falling just short of the record $11.66 billion Exxon Mobil (XOM, Fortune 500) earned in the prior quarter. The profit in that quarter came to $1,385 a second, enough to buy nearly 382 gallons of gas at current prices.

The sheer size of the Exxon profit reported Thursday will still likely attract attention from consumer groups and lawmakers, who have been arguing for higher taxes on oil companies amid soaring gas and oil prices.

"There is something seriously wrong with our economy when Exxon's record $11 billion in quarterly profits are seen as a disappointment by Wall Street," Hillary Clinton said in a statement, referring to the fact that Exxon's shares fell more than 3% Thursday. "I believe we should impose a windfall profits tax on big oil companies and use that money to suspend the gas tax and give families relief at the pump."

John McCain, the presumptive Republican nominee, also has called for suspending the gas tax, although he has not detailed how he would make up the lost revenue.

Clinton also has a plan to use a tax on oil companies to fund renewable energy, as does her rival Barack Obama, although Obama does not support eliminating the gas tax, saying the idea would do little good.

Several lawmakers in Congress, mostly Democrats, have tried to eliminate oil company tax breaks and use the money to fund renewables.

So far, those efforts have gone nowhere, blocked by lawmakers and the Bush administration, who say higher taxes will result in less domestic drilling and a greater reliance on imported oil.

But with gasoline prices setting a new record every day, the political pressure is mounting on lawmakers to do something.

Why record oil doesn't mean record profits.

Gasoline prices actually helped Exxon miss estimates Thursday. While nationwide gas prices are at record highs, they have not risen as fast as oil prices.

Gasoline, with a nationwide average of $3.62 a gallon, costs about 20% more than it did a year ago, according to the motorist organization AAA.

But oil, at $113 a barrel Thursday, costs over 75% more than it did a year ago.

Exxon - which makes more gas than it produces oil - saw less profit than expected partly because it has to pay more to buy crude oil.

"Higher crude oil and natural gas realizations, driven by record worldwide crude oil prices, were partly offset by lower refining and chemical margins, lower production volumes and higher operating costs," Rex Tillerson, the company's chief executive, said in a statement.

Another reason Exxon missed estimates is that its overall production fell. The company said "liquids production," which includes oil, fell 6% in the quarter, even excluding things such as OPEC production quotas or seizures in Venezuela.

One analyst said Exxon could be easing production as certain fields, giving them a chance to rest and rebuild pressure - and avoiding posting even higher profits.

"I think Exxon has decided to mask some of their profitability because they don't want the political risk", said Robbert Van Batenburg, Head of Global Research at Louis Capital Markets, a brokerage. "Above and beyond this, their results were outstanding."

Exxon, by the numbers

Exxon posted first-quarter net income of $10.89 billion, or $2.03 a share. That's up 17% from the $9.28 billion, or $1.62 a share it earned a year earlier, but it missed the earnings per share consensus forecast of $2.14 from analysts surveyed by earnings tracker First Call.

Revenue hit $116.85 billion, up 34% from a year earlier when sales hit $87.2 billion. The revenue was short of forecasts of $124.4 billion.

Exxon spent $8 billion buying back shares in the first quarter. Companies buy back shares to increase the value of the remaining shares outstanding.

Including dividends, the company returned $9.9 billion to shareholders this quarter.

Exxon said it spent $5.5 billion on finding and developing new sources of oil and gas, up 30% from a year ago.

Exxon has been criticized for not spending enough money of finding new oil and - especially - not investing enough in renewable resources.

Exxon has long maintained that it is an oil company, and renewable technologies should be left to renewable energy companies.

Despite Exxon's investments in finding new oil, the company production declined. In addition to oil production falling, overall production including natural gas fell by 3 percent.

That drop will likely be noticed by proponents of the "peak oil" theory, who contend world oil production has peaked and will run out in fairly short order.

Many analysts - and Exxon executives - say the oil is there, it's just held in countries not particularly friendly to U.S. oil firms.

The company also paid $9.3 billion in income taxes, $8.4 billion in sales taxes, and $11.6 billion in royalties.

-- CNNMoney.com's Chris Isidore contributed to this story  To top of page

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