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Some Sanity on the Exxon-Mobil 2Q08 Financial Report

Big Numbers vs. Bigger Numbers

Exxon-Mobil released their 2Q08 financials yesterday – and as surely as the night follows the day, the usual suspects have begun baying at the moon about it all.

Business sense is scarce in Washington, so one wonders whether this baying is due to genuine ignorance – or is merely posturing. But given the big-dollar numbers that are the stock-in-trade of Washington, one would expect better of people than game-playing with “big” numbers that in reality must be compared with even bigger numbers.The interested reader can find the raw data of the XOM 2Q08 financials here.

A few comments from an experienced eye….

o Comparing 2Q08 with 2Q07, total revenue rose to $138.1B from $98.4B – yet total net after-tax income rose to $11.7B from $10.3B; thus, XOM’s net after-tax margin declined substantially – from 10.5% to 8.5%. This indicates that XOM’s overall business health actually has eroded considerably in the past year.

o As per the above, it’s not the raw numbers (beloved of demagogues) that matter – it’s the percentages. XOM’s 2Q08 and 1H08 revenue numbers were $138B and $255B – in other words, this is a north-of-$500B company. That provides critical scale to all the other numbers.

o The oil sector is actually rather weak on net profit margins – usually down in the mid-single digits; in contrast, Intel’s net after-tax margin is typically in the mid-twenties, and other sectors turn in higher numbers. Compared to other sectors, oil is not a terribly profitable business – even in the best of times.

o XOM’s total after-tax net in 2Q08 was $11.7B – but scroll down in the report and you’ll see that they paid $32.4B in taxes. $32.4B in taxes, $11.7B in net profit, and some people in Washington want even MORE? Indeed, there sure is greed on display here…. but it’s not on XOM’s part….

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