The ratings agency said it sees Exxon returning cash to shareholders instead of building cash or reducing its debt, which could limit improvements on credit measures even when oil prices recover.
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With Exxon’s slip, Johnson & Johnson and Microsoft are the only companies with a pristine rating from S&P. Exxon Mobil has more than doubled its debt load since 2012, for example, to fuel dividend payments, share buybacks, and capital expenditure, a factor S&P cited when cutting its rating. In the previous quarter, the company reported a 58 percent drop in profit to $2.78 billion.
However, the dividend increase was just 2.7%, the smallest raise since at least Q1 2006, when the dividend rose 10%. The outlook remains “stable”. Seven equities research analysts have rated the stock with a sell rating, thirteen have given a hold rating and nine have given a buy rating to the company.
But in February, with oil prices having fallen in half since mid-2014, Exxon changed course and said it would only repurchase shares to offset dilution, as opposed to returning cash to shareholders. Investors of record on Friday, May 13th will be issued a dividend of $0.75 per share. Cash flows have dried up due to the crash in oil prices, forcing producers to slash spending and to take on more debt.
Moody’s in February affirmed its “Aaa” rating for Exxon with a negative outlook. BP lowered its full-year capital spending target to $17 billion, down from a range between $17 billion and $19 billion, and noted that it could reduce it further to between $15 billion and $17 billion in 2017 if oil prices remain weak. The increase in investor’s income came at a time when majority of the companies are indecisive between strengthening their balance sheet and paying back to shareholders.
The multi-billion company was demoted by S&P, driven by persistent low oil price, for the first time since the Great Depression.
“Despite the favorable effect of lower service costs and improved efficiencies, we believe that maintaining production and replacing reserves will eventually require higher spending”, according to S&P.
On April 26, 2016 Exxon Mobil Corporation (XOM) announced that it is contributing $100,000 toward American Red Cross disaster relief assistance for communities impacted by recent severe storms and flooding in the Greater Houston area.
Exxon Mobil Corporation (NYSE:XOM) gained 0.31% and closed in the last trading session at $87.60.
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Wall Street analysts also did not react to the news with alarm, saying the low oil and natural gas prices made the move inevitable.
