Exxon's Profit Took a $1.5 Billion Hit Last Quarter. Is the Oil Stock Still Worth Buying?

Key Points

• Exxon expects that its earnings will decline by $1.5 billion in the second quarter.

• The oil giant will likely still post industry-leading profitability.

• It expects its earnings to grow meaningfully by 2030, even if crude prices don't improve.

• 10 stocks we like better than ExxonMobil ›

ExxonMobil (NYSE: XOM) recently provided investors with a sneak peek at its second-quarter financial results. The oil giant revealed that it expects its profit to decline by $1.5 billion compared to the first quarter, primarily due to weaker oil and gas prices.

That profit slump likely has some investors wondering whether it's an ominous sign for the oil stock's future. Here's a look at whether ExxonMobil remains a good investment despite declining profits.

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Drilling down into Exxon's second-quarter review

In a recent regulatory filing, Exxon noted that it expects its upstream oil and gas production segment will see a more than $1 billion hit from lower oil prices and a nearly $1 billion impact from weaker gas prices. On a more positive note, the company anticipates that higher refining margins will boost its earnings by about $300 million. Overall, the company expects its profits to fall by around $1.5 billion compared to the first quarter. It will officially report its second-quarter financial results on Aug. 1.

While the expected drop is a lot of money, Exxon will still post a very profitable quarter. The oil giant reported $6.8 billion of upstream earnings in the first quarter and $7.7 billion of total profit. That total led all international oil companies (IOCs) in the period. For comparison, Chevron reported $3.5 billion in earnings while Shell's adjusted earnings were $5.6 billion. Exxon also led IOCs in cash flow from operations ($13 billion) and shareholder distributions ($9.1 billion, including a sector-leading $4.8 billion of share repurchases). So, while Exxon expects its earnings to decline in the second quarter, it's still likely to deliver industry-leading financial performance.

A big contributor to Exxon's leading profitability is its structural cost savings program. Since 2019, Exxon has stripped $12.7 billion in costs out of its business, which is more than all other IOCs combined. It cut $600 million in costs during the first quarter alone. Exxon has also benefited from its focus on investing in its advantaged assets, places like the Permian and Guyana, which have low costs and high profit margins.

Just a speed bump

While ExxonMobil expects its profits to dip in the second quarter, it anticipates a reacceleration in the coming years even if oil prices don't recover. Last December, the oil giant unveiled its plan to 2030. That strategy aims to deliver the growth potential of $20 billion in earnings and $30 billion in cash flow by 2030 compared to 2024's baseline. That implies compound annual growth rates of 10% (earnings) and 8% (cash flow). Exxon can achieve that growth assuming crude oil averages around $65 per barrel (it was recently around $70 per barrel).

Exxon expects two catalysts to fuel its earnings growth plan. A core aspect of its strategy is to continue pouring capital into developing its advantaged assets. The company plans to invest around $140 billion in the coming years into major capital projects and its Permian Basin development program. Exxon expects to generate returns of more than 30% over the life of those investments. Its capital spending plan will grow its higher-margin production, which will help boost its profitability. For example, the company is in the process of starting up 10 key projects this year, which have the potential to deliver more than $3 billion of incremental earnings in 2026.

In addition, the oil company expects to continue delivering structural cost savings. It aims to achieve a total of $18 billion by 2030. The company has outlined several strategies to achieve this target, including streamlining its business processes, optimizing supply chains, and upgrading its information technology and data management systems.

The oil giant's plan to boost its profitability and cash flow should enable it to grow shareholder value. Exxon should be able to continue increasing its dividend (it has raised its payout for 42 consecutive years) and repurchasing stock.

Still a buy despite the profit slump

Exxon's earnings will fluctuate from quarter to quarter due to commodity price volatility. However, the company expects its earnings to grow significantly over the coming years as it executes its investment plan and cost-saving initiatives. That long-term growth puts Exxon in an excellent position to continue creating shareholder value, making it look like a great stock to buy and hold despite the current dip in its earnings.

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Matt DiLallo has positions in Chevron. The Motley Fool has positions in and recommends Chevron. The Motley Fool has a disclosure policy.