Integrated petroleum industry behemoth Exxon Mobil (XOMFree Exxon Mobil Stock Report) has reported disappointing first-quarter earnings of $0.55 a share, versus $1.09 a year earlier and our estimate of $1.00. The shares are trading moderately lower on the news. Results were weak across the board, and especially poor in the volatile refining segment. But it is not unusual for performance to vary considerably from quarter to quarter, or year to year, given the bottom line's reliance on pricing. The company still managed to earn $2.4 billion for the first three months of the year, although that is about half of the $4.7 billion netted in the first quarter of 2018. Investors didn't view the report too negatively, though, in view of recent strength in the oil market.

A lower profit total was expected to an extent, owing to a weak start to oil prices this year after their steep decline late in 2018. Natural gas prices were also held back by warmer weather, which limited sales volumes of that fuel. But Exxon Mobil's mainstay oil and natural gas production business is nevertheless showing promise. The company pumped slightly (2%) more oil and natural gas on a combined basis versus a year ago, driven by an aggressive drilling program in the United States. Exxon is strongly focused on developing properties acquired in the Permian Basin of Texas, and early indications suggest the potential for production totals to rise modestly into the next decade.

Elsewhere, results in the refining sector were undeniably poor, with margins swinging to the downside, as gasoline inventories swelled. The company's business model holds that at least one of its lines, oil pumping, refining, or chemicals manufacturing will prosper when one or both of the other segments is weak. Normally, that idea works out in practice, but this proved to be the rare quarter when all three lines were weak, as narrower chemicals margins hurt earnings from that sector.

All in all, Exxon Mobil's results were a bit of a letdown, but likely only a temporary setback. The positive takeaway is that company's drilling initiatives are on track, supported by strong cash flow and powerful corporate finances. Exxon has raised its dividend by 6.1% and the shares offer a generous dividend yield above 4.0%. We see the stock as a high-quality income holding with some long-term upside if oil prices hold up and the economy makes steady progress.

About The CompanyExxon Mobil Corp. is the largest publicly traded oil company in the world. It also owns 69.6% of Imperial Oil (Canada). Daily production in 2018 was as follows: crude oil, 2.3 million barrels (flat vs. ’17); natural gas, 9.4 billion cubic feet (-4% vs. ’17). Reserves as of 12/31/18 were 21.2 billion barrels of oil equivalent (57% oil and 43% gas).

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.