This summary is based on the second quarter fiscal 2007 earnings call conducted by ConocoPhillips (COP) on July 25, 2007.
Chairman and Chief Executive Officer: Jim Mulva
EVP, Finance & Chief Financial Officer: John Carrig
General Manager of Investor Relations: Gary Russell
Key Investors Issues
- The earnings per share fell to 18 cents versus $3.09 in the previous year.
- Quarterly revenue grew to $47.4 billion from $47.1 billion in last year.
- In Q2, the company generated about $4.8 billion of cash from its operations.
Second Quarter Fiscal 2007 Financial Highlights
For the second quarter of 2007, the net income was $301 million.
This includes a $4.5 billion impairment associated with the expropriation of assets in Venezuela. Excluding this impairment, the earnings for the second quarter were about $4.8 billion. This is $1.3 billion higher than the first quarter net income of $3.5 billion. The first quarter 2007 results included a $490 million benefit from the impact of the firm’s asset rationalization program. The firm also had a net benefit in the second quarter from this program, but it is quite a bit smaller.
Prices, margin, other market impacts improved net income in the second quarter by about $1.8 billion. The company had lower sales volume and that reduced income by $76 million. The firm had a net benefit of $87 million in the second quarter from its asset rationalization program. The other items which reduced the income in the second quarter were $122 million made up of many items, such as higher compensation benefit costs, operating costs, asset retirements and equity earnings.
The company generated about $4.8 billion of cash from its operations in the second quarter.
This is about $2.1 billion lower than the first quarter, but the first quarter included about a $2 billion benefit from working capital, which is largely attributed to taxes payable in Norway. The company made a sizable tax payment in Norway in the early part of April.
The cash from operations along with the cash balance at the beginning of the quarter allowed the firm to spend $2.6 billion on its capital program, pay $668 million in dividends, reduce debt $856 million and buy back $1 billion worth of its shares. At the end of the quarter, the company had a cash balance of $1.4 billion and that''s $600 million higher than the end of the first quarter.
The total cash available during the first half of the year was $13.9 billion. About 84% or $11.6 billion is generated from operations and 16% came from asset sales. The company spent $5.6 billion on its capital investment program, reduced debt by $4.3 billion, bought $2 billion of its stock back and paid $1.3 billion in dividends.
The equity of the company remained at $86 billion, which is the same as the first quarter.
This is a result of the Venezuelan impairment offsetting the earnings from operations. The firm has made over the last several quarters reducing its debt that now stands at $22.8 billion at the end of the second quarter. That is nearly $1 billion lower than the end of the first quarter. The debt to capital ratio was at 21% at the end of the second quarter. If you consider debt ratio on net cash balances then it would reduce the number from 21% to 19.9%.
The corporate expenses were $337 million, after-tax, down slightly from $341 million in the previous quarter and down from $412 million in the second quarter of 2006.
Compared to the previous quarter, lower net interest expense was offset by higher benefit-related charges. The decrease from the second quarter of 2006 primarily was due to lower net interest expense, lower acquisition-related charges and reduced foreign currency losses. This decrease was offset partially by higher benefit-related charges.
ConocoPhillips’ second-quarter effective tax rate was 91.4%.
The effective tax rate adjusted for the Venezuela impairment was 40.6% compared with an effective tax rate of 41.5% in the first quarter of 2007.
