BP (NYSE:BP) stock advanced as much a 4 percent in early trading on Tuesday after the multinational oil and gas company reported third-quarter financial results. Consolidated underlying replacement cost profit — an accounting method that adjusts for the constantly fluctuating price of oil, similar to “last in, first out” — fell 26 percent on the year to $3.7 billion. Underlying earnings per share fell 26 percent on the year to about 20 cents. On a replacement-cost basis, adjusted earnings of $1.17 per American depository share beat the mean analyst estimate of $1.
Good news kept coming for shareholders. The company announced that it was hiking its dividend 5.6 percent to 9.5 cents per share and that it would be selling off another $10 billion in assets before the end of 2015, with most of the proceeds going toward share repurchases. BP previously announced an $8 billion share repurchase program — this program was funded largely by the $12 billion sale of BP’s stake in TNK-BP — of which $3.8 billion had been completed by October 25.
Importantly, BP reported that operating cash flow edged up by $100 million on the year to $6.3 billion, indicating that the company’s core business mechanism is still working smoothly despite company reorganization, economic headwinds, and ongoing legal struggles.
“In 2011 we set a clear target for operating cash flow in 2014,” said BP Chief Executive Bob Dudley, “and we are confident in its delivery.” That target was to increase 2011 operating cash flow of $18.5 billion by about 50 percent to between $30 billion and $31 billion, assuming that the price of oil remains around $100 per barrel; oil was at about $111 per barrel in 2011.
Still, year-to-date underlying cash flow is slightly below where it was in 2012. Superficially, this has been amended by an $11.8 billion cash injection from BP’s disposal of its stake in TNK-BP, but heavy (and healthy) capital expenditures of nearly $20 billion YTD will help BP make good on its promise of cash flow growth.
Turning to what many consider the largest liability still facing the company, BP reported that the second phase of the MDL 2179 trial in New Orleans has closed, and that the legal snafu will essentially enter stasis until early 2014, when the court will consider what BP’s penalties should be under the Clean Water Act. All told, the Deepwater Horizon disaster has cost BP $42.5 billion, with $19.3 billion of the firm’s $20 billion trust fund already allocated.
The disaster, though still a significant item for any investor to consider, is increasingly a thing of the past. There seems to be little question now that BP will be able to successfully move on from the Gulf of Mexico oil spill and rejoin the pantheon of major multinational oil and gas companies populating the portfolios of retail investors around the world.
Still, BP stock is up only about 3 percent this year to date. Despite steadily improving underlying conditions, many investors seem unwilling to commit, and the stock has faced some heavy selling pressure in the wake of pessimistic news. Strong earnings and a beefed-up dividend should help retain some investor loyalty, but company-specific and industrywide headwinds could still suppress growth on the stock chart.
Industrywide headwinds have made themselves evident in the stock charts of BP’s major competitors. Shares of Exxon Mobil (NYSE:XOM) are down a fraction of a percent this year to date, while Chevron (NYSE:CVX) is up about 9 percent — although not without several dramatic price swings within its slow climb.
Exxon Mobil will report earnings on Thursday and Chevron will report on Friday. BP’s strong results are likely to boost expectations for the performance of both companies, as rising oil prices raises all earnings. Analysts are expecting Exxon Mobil to report earnings of $1.77 per share and for Chevron to report earnings of $2.71 per share.
Investing Insights: Is Petrobras a Buy At These Prices?