ConocoPhillips reported before the market opened on February 2, 2021, it lost $0.72 per diluted share in the quarter that ended on December 31, 2020, down from earnings of $0.65 in the same 3 months of the previous year. These figures are the earnings determined in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
Adjusted earnings, a non-GAAP figure, fell percent to ($0.19) per share from $0.76 one year earlier. The exclusions responsible for the $0.53 per share difference in the latest quarter between the GAAP and Non-GAAP earnings were: Impairments [$0.81 per share], Exploration and other expenses [$0.13 per share], and Unrealized gain on CVE shares [($0.41) per share]. Non-GAAP earnings, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits.
This post compares the quarterly Income Statement published by ConocoPhillips to the estimates I made in a previous “Look Ahead” post. My estimates were based on publicly available guidance provided by ConocoPhillips's management to financial analysts, news reports, and trends in the company's historical results. Unless otherwise mentioned, all reported values mentioned below are GAAP figures.
First, a little background about the company: ConocoPhillips is the largest independent producer of oil and gas in the U.S. The company assumed its current name when it merged with Phillips Petroleum in 2002. A decade later, the midstream and downstream assets were spun off as "Phillips 66." Earnings at ConocoPhillips (and most other energy companies) fell sharply in 2020 because the COVID-19 pandemic significantly reduced demand for energy products. The industry has been consolidating in response to these challenges, and ConocoPhillips has been no exception. In January 2021, ConocoPhillips completed the acquisition of Concho Resources, a top producer in the Permian basin, in an all-stock transaction.
The following table is a simplified version of ConocoPhillips's Income Statement for the quarter that ended in December 2020, with company-reported numbers along side my predictions. Figures from the year-earlier quarter are also provided to facilitate comparisons.
Revenue in the December 2020 quarter totaled $5.5 billion, 29 percent less than last year. I was expecting ConocoPhillips to report revenue of $5.4 billion for the quarter. The actual amount surpassed my estimate by $91.0 million (1.7 percent).
The Cost of Revenue (also known as Cost of Goods Sold) was $3.6 billion in the latest quarter, which translates into a Gross Margin of 34.3 percent of revenue. Since it was lower than the 47.0 percent Gross Margin achieved in the year-earlier quarter, it's a sign that ConocoPhillips sold its products and services at less profitable prices relative to production costs. I was expecting the Gross Margin to be 42.0 percent in the December 2020 quarter, and ConocoPhillips missed that prediction by 7.7 percent.
ConocoPhillips spent $1.0 billion on exploration in the latest quarter, up from $151 million one year ago. I had estimated that R&D expenses would be $150 million. R&D was 19.1 percent of Revenue.
Sales, General, and Administrative expenses totaled $365 million in the December 2020 quarter, down 15.9 percent from one year ago. SG&A expenses increased from 5.6 percent to 6.6 percent of quarterly revenue, which shows ConocoPhillips spent more per dollar of sales on indirect operational costs, such as marketing. I had estimated that SG&A expenses would be 5.6 percent of revenue, and the actual percentage turned out to be higher than the prediction.
The last operating expense line on the Income Statement is where the sum of other operating income and charges, such as restructuring, may be listed. For ConocoPhillips the amount listed on this line was a $292 million loss in the latest quarter. I was expecting a net loss of $100 million.
ConocoPhillips's Operating Income was ($1.4) billion in the quarter, Operating Income fell short of my $318 million estimate by $1.7 billion.
Interest and other non-operating items summed to a net income of $191 million. My estimate for non-operating items was $100 million.
The effective income tax rate fell by 20.1 percent to 26.8 percent, which had a positive effect on net income. I expected the tax rate to be 29.8 percent.
Net income attributable to ConocoPhillips was ($772) million, ($0.72) per share in the quarter ending December 2020. The figures for the year-earlier quarter were $720 million, $0.65/share. My earnings estimate for the latest quarter was $253 million ($0.23/share), so ConocoPhillips earned $0.95 per share less than I had expected.
Because ConocoPhillips has repurchased a significant quantity of its own shares, the average number of shares outstanding during the last quarter was 2.4 percent lower than one year ago. The smaller share count boosted earnings per share by $0.02.
In conclusion, the following list shows where the reported results differed from my expectations:
– Better than expected: Misc non-operating items + Income tax rate
– Worse than expected: Gross Margin + Depreciation + R&D + SG&A + SG&A/Revenue + Special operating items + Non-controlling interests
– Near expectations: Revenue growth + Interest
This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed. Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company. These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).
#conocophillips #cop #gauges #gcfr #gcfr2 #QtrlyRpt #nac_financialanalysis
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