I'm a free market capitalist but this is obscene in my view. Of course if you are an Exxon-Mobil shareholder you're ecstatic. Notice that the official explanation is that profits are driven by rising oil prices. Huh? That means the company is not only absorbing little if any of the increased costs but is most likely profiteering. Somebody tell me I'm wrong about this. NEW YORK (Reuters) - Exxon Mobil Corp., the world's largest publicly traded oil company, on Thursday reported quarterly profit surged, driven by rising oil prices. Net income in the first quarter was $8.4 billion, or $1.37 a share, up from $7.86 billion, or $1.22 a share, a year earlier. Revenue jumped to $88.98 billion from $82.05 billion. Crude oil prices have risen steadily from about $20 a barrel in 2002 to over $75 last week, handing oil and gas companies a long-running profit bonanza. But the fat profits have also angered U.S. drivers grappling with rising gasoline prices and provoked sharp criticism of Big Oil from lawmakers and consumer advocates.
Et tu Krebsie?! Take two aspirin and call me in the morning.....I know you'll get over it. It should surprise no one that a commodity company revenues increase when the underlying price of their commodity rises....be it copper, gold, timber or oil. It's doubtful that we would be crying in our cereal if oil prices went in the tank and XOM and their ilk were struggling to keep their head above water? btw, the investment community is very disappointed in their results....the stock is OFF $2 on the news..... Terry
I agree with you 100% but the article is talking about profit increases not just revenue. As THE major player what would be wrong with them tempering their pump prices a little to share the pain? It would have an across the board increase on all providers. And be great PR.
Arrrrgh....Krebsie, I'm losing you to the dark side. A sure sign that armageddon is upon us! :cry: Look closely again at that Reuters post.....the year over year increase in 1st quarter earnings was 7%. Surging? The last time your company grew its bottom line by 7% did it feel like it was surging to you? Of course not. Hell, 7% earnings growth is much closer to plodding than it is surging. Further, XOM's earnings are 21% lower than the 4th quarters results....where in the hell did they get surging? What a crock! XOM's margins declined to 9.4% in the first quarter well below average for the S&P 500 and likely considerably below well-run office systems providers in Jersey! Let's take a look at where the $8 billion went.....$4.8 billion went to exploration and infrastructure enhancements and XOM returned $7 billion to their owners by way of share buybacks and dividends to compensate them for their investment risks and encourage future investors to continue to provide future capital for a very, very capital intensive industry. If as some propose, XOM slash prices and eat into already below average margins, from a policy perspective, do we have them invest less in exploration and infrasturucture needs or less to their capital providers?????? It seems that neither would be consistent with what needs to happen from a long term policy perspective.....it might feel good for a while, until we wake up with a massive interventionist induced hangover.....Stay with me Krebsie! Terry
I can't think of any other industry that profiteers when it's costs rise as do the oil companies. They must salivate at the news every day when they hear oil barrel prices are going through the roof! They absorb not one penny of the increasing oil prices or so it would seem. They just merrily raise the price of gas so that not only is the higher oil price taken care of but their own coffers swell exponentially. Someone splain to me why they can get away with that and what makes it ethical?
Utter nonsense...... Let's look at Copper for example. Phelps-Dodge is the dominant with a capital D provider in the industry. Their competitive position in the business is the kind that would make XOM look like a cropper in comparison. Let's put that in perspective....a five fold increase in crude oil would have crude selling at $160 per barrel -v- it's current $70ish level. Gasoline prices would be hovering around $7 per gallon -v- $3ish. The question then is how have the fortunes of PD fared in the face of this dramatic price increase? Their earnings have gone from $95 thousand in 2003 to $1 Billion in 2004 and most recently $1.6 billiion in 2005. Now that my friends is surging.....and surely should put XOM's 7% increase in some perspective. Oh yes, and the stock price......the line on the bottom is XOM. http://finance.yahoo.com/q/bc?t=2y&s=PD&l=on&z=m&q=l&c=xom This will be political theater at its best or worst depending on ones perspective. Let's all hope that we don't step on our collective cranks in our haste to make political hay for the upcoming elections.....
Terry, As a person who has made his living in the world of finance, I grant you mucho kudos on how you present your case. You use solid logic and you present facts to back it up. However, revenue and profit levels aside, what you are not taking into consideration is the "nature of the beast". There is no question in my mind, based on my eyeball analysis, that price collusion exists on some level. It may be limited to the local level, far below the big guys like Exxon, but it does exist. It may be limited to looking out the window at the competitor's price then adjusting yours, but it does exist. In my hometown of Fort Wayne IN, the prices always are the same, consistently anywhere from 5 to 20 cents above prices 20 miles in any direction. Absent whistleblowers, I know it cannot possibly be proven, and there are far greater issues to address, so I don't lose any sleep over it. But I know in my gut it exists.
Sid has stated more coherently what I've been trying say. And there is also a question of image... A CEO retires and gets a $400 mil payout, bodyguards, private jet and who knows what else. Meanwhile people are buying their gasoline with Visa cards because they don't have enough cash on them to fill the tank. The gas prices have trickled down to my business. I have a lot of employees on the rtoad daily and I pay them a fuel allowance which I have to increase. I try to pass some of this on to my customers. Yesterday two of my customers called to protest my price increase. They are valued accounts so I backed off on them individually. But I'm just a small businessman so I can't afford to be arbitary or smug. I HAVE to listen to my customers. In theory you are absolutely correct, BT. What I am telling you is real world. I'm right too. :wink:
Like copper is a consumer staple here in the U.S. that all Americans must pony up for, for life to exist as they know it. In present day money I used to pay $600.00 per month on AT&T bills back in 1979 before divestiture and real competition began in the phone industry. Now my total household phone bill that includes three cell phones and a landline is no more than $200.00 I used to fly to Florida in 1978 for $285.00 much like I do today for the same price 28 years later. That's what competition will do for the American consumer. It's hogwash that the oil industry has any true competition amongst themselves at all and that "their hands are tied" with regard to gas prices. That's a load of crap.
Sid, is that not true in every business? Mustn't one always keep an eye on the competitors and the value/utility that he is offering the customer? Provided that consumers are behaving rationally and rewarding the best available value/utility proposition with their business, competitors would be in a position to benefit by lowering prices if indeed prices were at artifically high levels. Sid, you're a finance guy. You appreciate the dynamics of business and economics. Let's consider the case of Citgo....Citgo has 14,000 retail locations in the US. Citgo is owned by the national oil company of Venezuela controlled by that anti-US zealot of a nutball Chavez. Chavez has threatened our country with any number of nastys...economic and otherwise. If indeed gas prices were being kept artificially high, why would Chavez not seek to line the pockets of his countrymen in an extravagant manner at the expense of the price-gouging Yanquis by slashing prices, expanding locations, dramatically ramping up Citgo revenues and taking market share from all the profiteering Yanqui firms? That would clearly be nirvana for Chavez. Why would he not do that? I don't understand....somebody needs to help me satisfactorily answer that question before I can even begin to subscribe to any price fixing theories... Terry
Well, actually yes it is......you are a massive consumer of copper every minute of every day, whether or not you realize it. For your life to exist as you know it, you probably need running water. Copper... For your life to exist as you know it, you probably need electricity. Copper.... The list is too long....I'll just stop there and assume you get the picture or the message. Copper.... Terry
Terry, I like reading what you write. You are well-informed and very knowledgeable. Your comments about Citgo and Venezuela are very informative. My position as I described it is like George's. We both are knowledgeable businessmen (In my case, knowledgeable does not mean smart), and we understand human nature as it exists in the business world. I believe that our differences with you (Correct me George if I'm off base) are not in the support of free enterprise. They are in the experience-based gut feeling that people in key positions somewhere in the food chain are taking advantage of the situation to line their pockets, thus affecting in some way the end price to the consumer. In any event, I see this as a healthy discussion.
Sid, it is a healthy discussion and I'm enjoying the back and forth. I thnk we all benefit from the shared experiences and the debates when the discussion is rational as it is here. As it relates to experiences and human nature, my gut and experiences tell me that there are an awful lot of very, very smart and very, very greedy guys with deep pockets or the access to same out there looking to game the system in any way that may be profitable.....my view is that if there were key people somewhere in the food chain with the wherewithal to take advantage of the situation and artificially exploit prices on a global basis, great wealth would be available to those who identified the inefficiences and eliminated them or otherwise worked around them. My "greedy guys" would finaggle a solution that would enrich them tremendously.....perhaps the Citgo/Chavez scenario or another, but there are fewer stronger forces in human nature than ingenuity, greed and access to capital!
Sid and I are in harmony here. I remember the last time I went to Epcot Center with my wife..... there were all kinds of people spending hundreds of dollars on admission fees... virtually all with plastic. Now I know its a supply and demand situation and in this case totally elective entertainment. But at the same time Michael Eisner was pulling down hundreds of millions per year in salary and stock options while Disney stock languished. It just doesn't seem right.
Oh geez Krebsie, don't get me started on executive compensation......! :wink: I have no problem with well-crafted compensation plans that align the interests of managment consistent with those of their shareholders/owners. If their companies are successful and their owners benefit it follows that the owners should reward managment - after all , it's the owners money. I am familiar with Eisners compensation package and would argue that his shareholder/owners benefited enormously under his leadership, the vast majority of his comp was stock based and he benefited along with them....under his leadership, DIS increased in value 15 fold...that is a big number. However, DIS during the last couple years of his tenure languished and he was given the boot as should all CEO's whose companies languish. If you hired a guy to run your company and during his tenure the value of the company increased 15 fold and more than double that of the nearest competitor, how much would you be willing to pay him? For me, I'd be willing to give him a boatload..... That said, there are also a whole bunch of crappy executive compensation packages that are self-serving and contrary to the interests of the owners....needless to say, I am not supportive of those. Terry
BT, You expect me to go for that stretch of an example you put forth on copper being a staple of the American consumer? Care to quantify just how much I pay for copper in my water in a year's time? My house was built many years ago and trust me I have never seen a copper bill from the mortgage company. On the other hand you did not respond to my comparison of oil/gas as a staple of the American consumer vs. phone communication and air travel. I would venture that if we did not have true global price competition on automoblies that Detroit would be singing an entirely different, chirpier tune right about now with regard to profits. The problem with oil is....where is the competition? Why not? Who is stopping it? is there collusion and monopolistic price gouging going on? Who in government has set up and protects this deal for Big Oil?
You example makes their point. When copper rises overnight it costs more to BUY copper but it doesn't cost the consumer more the next morning at Walmart, Best Buy, or Mom & Pop's Emporium to buy a flashlight, a computer, or any other copper using widget. It might cost the consumer more eventually after the mining operation charges the smelter who passes it on to the distributor who passes it on to the widget manufacturer who now decides whether to absorb the increased cost or pass the cost on to the sales outlet who has to make the same absorb or pass on the cost to the consumer. With gasoline or diesel Exxon just sends out a fax to their retail outlets and the cost is instantly raised. So how does an oil company pump or buy oil, send it to a refinery owned by others, and raise the price at the pump on cheaper inventory sitting in the tanks at the service station? For disclosure, my father ran a company owned Exxon service station. I worked there as a kid and got to stick the tanks daily to determine when to call for delieveries of the various grades of gasoline. I also got to change the price per gallon on the pumps as dictated by the company. Price increases were passes along quickly. Price decreases lagged declines in per barrel cost. Home heating oil which local distributors buy under contract likewise raises instantly (to the consumer) with the spot oil price although it has been purchased weeks or months in advance. A delivery truck that returns to the distribution plant with a half a load goes back out the next day with the same load but sells at a higher price if the price/barrel increased. I still (vaguely) remember LIFO and FIFO methods but what is the instanteous pass through accounting system called - other than gouging?
Very good stuff Jack. I venture that oil barrel price decreases lag in the retail sector because the oil companies make damned sure they have sold the higher cost oil before they lower the price on it. On the other end, they immediately raise the cost of retail products because they are in the business to gouge whenever there is any sort of justification in the news. I like the "distribution interruption" excuse myself for regional price gouging. This could be totally contrived as a strategy but even if true the mismanagement or lack of planning mistake made by the distribution network managers is actually rewarded by higher profits because the consumer pays through the nose at the pump for that mismanagement. Sorta like Enron orchestrating a power outage in California and then charging up the wazoo for the power it supplied afterward.
As a non-financial non-business guy, bowing to all y'alls larger knowledge, I fail to see the problem with large profits for oil companies, ASSUMING THERE IS NO COLLUSION. Why would we not want it to be profitable for others to be in that business...for other competitors to find alternative sources (i.e. coal extraction) If we limit profits, by artificially lowering prices, or by taxing the hell out of the company, all we do is discourage searches for new sources of petroleum and alternative energy sources. Price controls would increase demand while at the same time decreasing supply...not a solution to the problem. stu
:roll: There isn't any collusion. The oil industry is the most investigated industry of all time. There are people out there, like the attorney general of California who've been investigating the oil industry 24/7 for the last 6 years in hopes of becoming the new liberal hero and they've found nothing. There are three booming economies in the world that are driving demand for oil: USA, China and India and they show no signs of slowing down any time soon. Our energy policies have been like our border policies: written by Alice, in Wonderland, chasing a wabbit that doesn't know where it is going. BOTH political parties are responsible for this mess in their own way. Its so easy for politicos to be against every technology in order to pose as "environmentalists." What they will never admit, of course, is that being against everything carries a price too: higher energy prices driven by market demand. They knew this and now we are at that crossroads. Watch them place the blame everywhere, except in the mirror... ................TP