3-07-08 by dugan
The next time you pump $70 worth of $3.50 a gallon gasoline into your tank, munch on this thought: When ExxonMobil defends its $41 billion yearly profit profit to us angry peasants, it’s a mere "10 percent of revenue," just like other big companies and less than, say, big tech companies. When Exxon reports to big investors, it talks about a much different profit measure.
Exxon’s PR department reported this week on CEO Rex Tillerson’s speech Wednesday to stock analysts in New York, focusing on plans to "invest more than $125 billion in capital spending over the next five years to deliver major projects to help meet growing world energy demand." More on that later. Buried at the bottom, and not much reported in the financial media, was this:
"ExxonMobil continued its superior performance with a 2007 return on average capital employed of 32 percent, almost 40 percent greater than its closest competitor, and increased its five-year average to 28 percent."
At 32 percent, Exxon is making more than double what U.S industries make on average by the same measure. And about triple what regulated gas and electric utilities make.
Here’s a great piece by consumer columnist David Lazarus (now of the LA Times, previously at the San Francisco Chronicle) explaining Big Oil’s deceptive spin when it talks about profits to different audiences. It was written in 2006, but it’s just as accurate today:
While the oil industry habitually downplays its profitability when speaking to lawmakers, the media or the public, it sings an entirely different tune when addressing investors and others in the financial community.
In such cases, industry officials emphasize not their relatively benign profits as a percentage of total revenue but their very impressive "return on capital employed," or ROCE — their earnings as a factor of money spent to make money.
Exxon’s chief exec, Rex Tillerson, reiterated this point to Wall Street analysts in March.
"In our view, ROCE continues to be the best overall measure of financial performance given the long-term and capital-intensive nature of our industry," he said. "I would be cautious of anyone who tries to de-emphasize it."
As for Exxon’s plan to invest $125 billion over five years on exploration, refineries and the like, remember that it’s a well-spun announcement, not a promise. Not a penny is likely to go to developing renewable fuels. And remember that Exxon spends more than it invests, on a yearly basis, to buy back its own stock.
Since the end of 2005, Exxon has announced $60 billion in stock buybacks, money that doesn’t do anything but boost the stock price and act as a piggy bank for a company that makes unspendable, and unspeakable, amounts of profit.