ExxonMobil CEO Defends High Profits

http://abcnews.go.com/print?id=5574568

<h2 id="headline">ExxonMobil CEO Defends High Profits</h2> <h3 id="dek">Rex Tillerson Discusses Industry's Future in Exclusive Interview With Charles Gibson</h3> <h4 id="byline">By LAUREN SHER</h4> Aug. 13, 2008—



ExxonMobil CEO and chairman Rex Tillerson defended his company's staggering $11.7 billion in profits for the second quarter, saying that the company's earnings reflected the magnitude of its business operation.

"I saw someone characterize our profits the other day in terms of $1,400 in profit per second. Well, they also need to understand we paid $4,000 a second in taxes, and we spent $15,000 a second in cost," Tillerson told ABC News' Charles Gibson. "We spend $1 billion a day just running our business. So this is a business where large numbers are just characteristic of it."

ExxonMobil earned the best quarterly profit ever for a corporation, up 14 percent from last year but still below investors' expectations. While Wall Street was slightly disappointed by Exxon's earnings, some Americans were outraged by what they saw as big oil profiting at their expense. Tillerson recognized that consumers are angry about the escalating price of gas.

"I can understand why people are very upset and why they're very worried and concerned about their ability to deal with these high prices," Tillerson said. "It does bother me that much of that is directed at us. Our job is to provide energy, to provide it in a means that is reliable. And we hope we can provide it in a means that's convenient as well to the consumer."

When asked whether he agreed with Phil Gramm, Sen. John McCain's former economic adviser, who labeled America as a "nation of whiners," Tillerson said he empathizes with American consumers.

"I don't think there's any question that if these prices -- $3.50, $4 a gallon for gasoline -- and the follow-through effects on the cost of electricity [are] causing a lot of problems for a lot of Americans. ... Their budgets just are very difficult for them to accommodate this."




Supply and Demand
But Tillerson also said that the combination of new technology on the supply side and energy efficiency on the demand side will make gas more affordable for the average American.

"What we can do is add new supply and to provide means for people to use the energy more efficiently, which will help reduce demand," Tillerson said. "And that's what we're spending a lot of our effort doing, is working on both sides of the demand equation and the supply equation."

Tillerson's suggestions for energy efficiency echoed recommendations by presumptive Democratic nominee Sen. Barack Obama, who called for tire-inflation and proper car tuneups to provide relief to distressed voters.

"Things like providing lighter weight tires, tires that retain their pressure more efficiently, lighter weight plastics to go into vehicles to reduce vehicle weight" will help consumers use gas more efficiently, according to Tillerson.

Energy has been center stage on the campaign trail, with both Democrat and Republican sides attacking one another's proposals and calling for energy independence.

But Tillerson added that energy independence is "not realistic for the United States or almost any other country."

"I'm not sure that it's even desirable for the United States to pursue that as a goal," he said. "Our country's economy is so interdependent with the rest of the world in so many areas of, not just commodities, but capital markets. ... So I'm not sure why we would view energy any differently than the way we view the rest of our economy."




'No One Solution'
When asked about the fragility of the global market to geopolitical developments across the world, especially in oil-rich nations such as Saudi Arabia, Tillerson suggested that energy diversity provides security.

"I think the response to that is to have as many diverse supplies of energy as possible. And that means both in terms of geographic diversity. You want to expose yourself or certainly have access for the American people to as many different geographic sources of supply as possible. So the disruption in one area does not leave you ... hostage to any one area."

Last week, Obama called to "end the age of oil in our time," claiming that the United States could produce enough renewable energy to replace all U.S. imports of oil within 10 years.

But Tillerson said that "it's going to be very challenging to achieve that goal, in that period of time. And again, so much of the energy issue that the United States deals with and the world deals with, people I think do not have an appreciation for the lead times that are required."

As for John McCain's solution to "drill now, drill here," Tillerson said that instead we should focus on both efficiency and drilling.

"We can't drill our way out of this problem, just like we can't conserve our way out of this problem, just like we can't alternative fuels our way out of this problem," he said. "There is no one solution to this; there's an integrative set of solutions. And you have to undertake them all. So when the whole debate focuses around we have to choose this one solution or that, people are missing the point."

Tillerson stressed that energy policy is bigger than any one candidate, and "for people or policymakers to pick one as being the winner is really shortsighted," he said. Policy must instead be a comprehensive, long-term approach. "And that does get to the question of are we doing everything here at home that we could be doing. And I think most people have come to the realization that, for many, many years, the United States has not fully developed its own natural resources."




The Next Generation
Instead of focusing on independence, Americans "should be developing, again, all the supply sources and all the options that we can develop in a way that's efficient and is going to provide energy at a cost that Americans can afford."

Tillerson sees ExxonMobil as more than an oil company -- more of an energy company that provides natural gas and coal while exploring alternative, renewable fuels and nuclear power. He said that the company is investing $100 million in a pilot plan to examine a new technology that can separate CO2 from gas streams.

"For ExxonMobil to make a meaningful difference, we've really got to find a way to change those technologies to provide those alternative forms of energy on a much larger scale and at a cost that people can afford," Tillerson said. "It doesn't do the consumer a lot of good to substitute an alternative fuel that costs $5 for gasoline that costs $4."

Tillerson explained that the percentage of funds invested in alternative energy does not compare to the amount invested in stock buybacks for company shareholders, because "we haven't found an alternative to invest in that makes a lot of sense for us."

ExxonMobil invested $12.5 billion, a record amount of capital into exploration expenditures, in the first half of 2008. But 55 percent of their profits go to stock buyback.

"Where we need to be 20, 30, 50 years down the road is to continue to be the most efficient producer and most environmentally responsible producer of oil and natural gas, to develop the next generation -- which is not available today -- the next generation of replacement fuels for the future."

Copyright © 2008 ABC News Internet Ventures

 

Maybe people are confusing oil with gasoline. They're two different things. We only have so much refining capacity, and it's basically been working at 110% of its capacity for years; we haven't built any new refineries in decades. So if they can only convert so much oil into gasoline, and the demand goes up, there's the basic law of supply and demand.

There's also the uses of oil and gasoline. Right now, we're using it to make a lot of electricity which is inefficiently used to make solar panels and other things that cure people of their green guilt. This affects the demand side of things, eh? We've been burning oil to heat homes, especially in the Northeast, for years. Good thing we have global warming, so we won't need as much heating oil...

It's also interesting to see how much profit per gallon of gasoline sold these companies make. I've read and heard it's only like $.10/gallon. It's not like they're making the gas for $.50 and selling it for $50 (or $4).

Then there's the unpublicized fact that these are OIL companies. They sell OIL as well as gasoline. When it DOES cost them $65 or less to drill for a barrel of oil and there's people out there paying $140 for it, they're going to make big profits on that end of the business.

The points about the numbers being giant in general makes a lot of sense, too. When you look at profits as a % of sales, the oil business isn't as good as software or fast food or many many other industries. Exxon-Mobile has more in sales than California makes in tax revenue. It's bigger than a lot of countries.

At least the guy is sensitive to the nature of oil and gasoline. It's not fast food, which we can pretty much do without and not feel the pinch. Oil and gas, on the other hand, are something of a necessity.

 

http://biz.yahoo.com/ap/080814/earns_wal_mart.html?.v=5

Wal-Mart says 2Q profit up 17 pct, raises outlook
Thursday August 14, 12:00 pm ET
By Anne D'Innocenzio, AP Business Writer
Wal-Mart's 2nd-quarter profit rises 17 percent as it attracts financially squeezed shoppers

NEW YORK (AP) -- Wal-Mart Stores Inc. raised its full-year earnings forecast Thursday after second-quarter profit rose 17 percent, helped by tight inventory controls and a renewed focus on low prices that is attracting financially squeezed shoppers around the world.

But the world's largest retailer predicted slower sales growth at its established stores in the U.S. for the current quarter, as the benefits of the federal stimulus checks dry up and customers find it more difficult to stretch their paycheck to the next payday.

The Bentonville, Ark.-based retailer said it earned $3.45 billion, or 87 cents per share, in the quarter ended July 31, up from $2.95 billion, or 72 cents per share, a year earlier. Profit from continuing operations rose 9.3 percent to $3.39 billion.

Net sales gained 10 percent to $101.6 billion from $92 billion in the year-ago period. Analysts polled by Thomson Reuters expected $101.9 billion.

For the quarter, the discounter posted same-store sales growth of 4.5 percent, excluding fuel sales, compared to a 1.9 percent increase a year earlier. Same-store sales, or sales at stores opened at least a year, are considered a key indicator of a retailer's health.

"We have improved customer traffic and ticket and overall sales growth in our markets," President and Chief Executive Lee Scott said in a statement. "While inflation and higher fuel costs are pressuring suppliers, retailers and customers worldwide, we're confident that Wal-Mart is well positioned for this economy."

The company now expects to earn $3.43 to $3.50 per share for the year, up from a full-year forecast issued in February of $3.30 to $3.43 per share. Wal-Mart also said its profits for the current quarter should be from 73 cents to 76 cents per share. Analysts expect 76 cents.

Chief Financial Officer Tom Schoewe attributed the better second-quarter profits to tighter inventory controls, which led to fewer markdowns on merchandise. The company also noted that it met its goal of having inventory grow at half the rate of its sales growth.

"Wal-Mart continues to execute well and deliver solid results in a challenging economic environment," wrote Adrianne Shapira, an analyst at Goldman Sachs in a note released after the retailer posted its results.

But the company re-emphasized Thursday that the economy remains difficult, noting that shoppers are increasingly unable to stretch their paycheck to the next payday.

"We still see sales volatility around paycheck cycles," Schoewe said, referring to the pullback in spending in the days before the paycheck arrives and the spike after payday when shoppers have the cash to buy.

Wal-Mart predicts same-store sales growth to slow to 1 percent to 2 percent for the third quarter, a sharp decline from the 4.5 percent it saw in the second quarter.

Still, the company and other low-price operators like Costco Wholesale Corp. are clearly performing better than department stores and apparel chains as consumers, aiming to save money for gas and food, focus their buying on necessities and shop at outlets that offer a breadth of merchandise. Wal-Mart wouldn't be in such a good spot if it hadn't overhauled its strategy -- refocusing on lower prices, improving the mix of merchandise offered, cleaning up its stores and providing friendlier and faster customer service.

With such changes, Wal-Mart reiterated Thursday that it is taking market share away from its competitors. The company has said that it expects to keep its new customers even when the economy improves. Its shares have responded as well, now trading about $57 each -- near the high end of its 52-week range of $42.09 to $61.00, while shares of rivals like J.C. Penney and Target Corp., which focus more on nonessentials like clothing and home furnishings, are in the doldrums. Shares of Wal-Mart rose 8 cents to $57.96 in midday trading.

Thursday's report underscores that Wal-Mart's low-price message is resonating even more now globally as U.S. economic woes spread to other areas of the world. Second-quarter sales were driven particularly by the international division, whose sales rose 19.3 percent to $25.3 billion, helped by such countries as Canada, China, and Brazil.

Scott told investors during a pre-recorded conference call that Wal-Mart is seeing a global economy that is becoming "difficult" and that economic woes are "showing up in developing countries." Scott told investors that executives in international divisions say they're noticing more financial stress on their customers. In Puerto Rico, for example, shoppers are eating more sandwiches. Wal-Mart is responding by rolling out ready-to-eat meals, which have also been popular with its U.S. customers who aren't dining out as often.

At Wal-Mart's U.S. stores, sales rose almost 8 percent to $64.1 billion, while the Sam's Club warehouse store division posted a 7.8 percent sales gain to $12.28 billion.

 

So...

Exxon-Mobil's profit is up 14%, and WalMart's is up 17%.

Puts things in some perspective.