Exxon and Chevron Q2 Earnings Drag Down Energy ETFs - ETF News And Commentary

The prolonged weakness in oil prices has been hurting the profitability of the energy sector over the past several quarters and the Q2 earnings picture is not different in any way. Yet again, the energy sector has been the biggest drag to second-quarter earnings (read: Q2 Earnings Bring No Respite for Oil Service ETFs).

This is especially true as the biggest U.S. energy producers – Exxon Mobil (XOM) and Chevron (CVX) – posted their worst quarterly profits in several years missing our estimates. On the revenue front, the duo surpassed our estimates.

Earnings in Focus

The largest U.S. oil company, Exxon Mobil, reported earnings per share of $1.00 which missed the Zacks Consensus Estimate of $1.11 and were less than half the year-ago earnings of $2.05. This is the worst quarterly performance in six years. Total revenue plunged 33.4% year over year to $74.1 billion but was well ahead of the Zacks Consensus Estimate of $66.4 billion. Based on lackluster profits, Exxon Mobil cut its share repurchase program by half to $500 for the ongoing third quarter.  

Chevron, which trails Exxon Mobil, posted the lowest profit in 13 years. Earnings per share of 30 cents lagged the Zacks Consensus Estimate of $1.13 and fell from the year-ago earnings of $2.98. Revenues dropped 30.3% year over year to $40.36 billion but were much above our estimate of $29.53 billion.

Market Impact

The lackluster results led to terrible trading in both the stocks, pushing shares of both down by nearly 5% on Friday trading session on elevated volume. XOM suffered its worst one-day loss since August 2011 while CVX saw the biggest one-day decline since November 2014 (read: 4 Ways to Short the Energy Sector with ETFs).

The share price decline also sent energy ETFs in the red territory as well. The funds having large allocations to these big oil giants were the worst sufferers. Below, we have highlighted some funds that lost over 2% on the day following the weak big oil earnings and would be in focus for the coming days.

iShares U.S. Energy ETF (IYE)

This ETF tracks the Dow Jones U.S. Oil & Gas Index, giving investors exposure to the broad energy space. The fund holds 92 stocks in its basket with AUM of over $1.3 billion and average daily volume of more than 1.1 million shares. The product charges 45 bps in fees per year from investors. Exxon Mobil and Chevron occupy the top two positions in the basket and take the bigger chunk of assets at 22.9% and 11.5%, respectively. From a sector perspective, integrated oil & gas makes up for nearly 38% share while oil exploration & production, oil equipment & services, and oil storage & transportation round off the next three spots with double-digit exposure each.

Vanguard Energy ETF (VDE)

This fund manages nearly $3.9 billion in asset base and provides exposure to a basket of 151 energy stocks by tracking the MSCI US Investable Market Energy 25/50 Index. The product sees solid volume of about 421,000 shares and charges 12 bps in annual fees. Exxon and Chevron are the top firms with 21.3% and 11.1% allocation, respectively. Though the product is skewed toward the integrated oil & gas sector with 36% of assets, oil exploration and production, and oil equipment services provide a nice mix in the portfolio with double-digit exposure (see: all the energy ETFs here).

Energy Select Sector SPDR (XLE)

This is the largest and most popular ETF in the energy space with AUM of $11.9 billion and average daily volume of 15.7 million shares per day. Expense ratio came in at 0.15%. The fund follows the S&P Energy Select Sector Index and holds 42 securities in its basket. Here again, XOM and CVX occupy the top two spots with 16.6% and 13.0% share, respectively. In terms of industrial exposure, oil, gas & consumable fuels accounts for nearly 81.6% of the portfolio while energy equipment & services take the remainder.

Fidelity MSCI Energy Index ETF (FENY)

The fund follows the MSCI USA IMI Energy Index, holding 148 stocks in its basket. Out of these, XOM and CVX take the top two spots at 22.1% and 11.0%, respectively. In terms of industrial exposure, oil, gas & consumable fuels accounts for nearly 81.9% of the portfolio while energy equipment & services take the remainder. The product is the low cost choice in the energy space charging just 12 bps in annual fees and trades in solid volume of about 232,000 shares. It has accumulated $263 million in its asset base.

Bottom Line

The above-mentioned funds have a stable outlook with a Zacks ETF Rank of 3 or ‘Hold’ rating. However, many of the segments that makes up for these ETFs hold the worst Zacks Industry Rank and thus could demand more downside in the days ahead. So investors should definitely be cautious while entering this space.

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CHEVRON CORP (CVX): Free Stock Analysis Report
 
EXXON MOBIL CRP (XOM): Free Stock Analysis Report
 
SPDR-EGY SELS (XLE): ETF Research Reports
 
VIPERS-ENERGY (VDE): ETF Research Reports
 
ISHARS-US EGY (IYE): ETF Research Reports
 
FID-ENERGY (FENY): ETF Research Reports
 
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