Big Oil Is Swimming in Cash. Wall Street Isn't Impressed
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What macroeconomic headlines open the episode and why do they matter?
With your money briefing, I'm J.R. Whalen at The Wall Street Journal in New York. For many energy companies, these are happy days, with some companies collectively sitting on nearly $100 million in excess cash. So why isn't Wall Street impressed? We'll have the answer in a moment. First, these money and market stories you should know. Sales of new single-family homes in the U.S.
How have U.S. new-home sales and inventory trends shifted recently?
fell 5.5% in September, the fourth consecutive monthly decline. Meanwhile, inventory rose to a roughly seven-month supply. That's the highest level since March 2011. Almost all U.S. regions experienced new home sales declines last month, with the West seeing the largest monthly drop since the end of last year. According to the 2018 U.S. Trust Study of High Net Worth Philanthropy, wealthy women are more likely to donate money and time to charity than men.
What does the 2018 U.S. Trust Study reveal about wealthy women's philanthropy?
And the study found women were more often motivated to give to groups supporting other women. One in four wealthy women gave to causes focused on women and girls, including women's health, violence against women, reproductive health and reproductive rights, and girls' education and development. And if you plan to use UPS to ship packages this coming holiday season, listen up. To handle the surge in packages driven by online shoppers, UPS is building more shipping hubs and has added seven times more processing and sorting capacity this year than it did in 2017. But to offset those costs, the company is raising prices on domestic deliveries and adding surcharges on oversized packages. UPS is planning to deliver 800 million packages in the U.S.
How is UPS preparing for holiday shipping and what cost changes should consumers expect?
between Thanksgiving and Christmas alone. That's up from 750 million last year. And on nearly every delivery day during that period, it expects volume of more than 30 million packages.
Who doesn't like money? The broad gains in crude oil prices have brought strong profit gains to many of the world's largest energy companies. But why is Wall Street so far not impressed in not buying up shares? We're joined by Wall Street Journal reporter Sarah Kent to help us unlock the mystery.
Why are big oil companies sitting on nearly $100 billion in excess cash but not seeing stock gains?
So Sarah, the price of the global oil benchmark has gone up about 20% so far this year, but the share prices of these companies have not risen in lockstep. And that seems out of the ordinary, doesn't it?
Yeah. And especially if you break it down company by company, some have done better, some have done worse. The big American players have actually seen their share price fall this year. So investors seem to have really fallen out of love with the sector.
Now, these companies, as you point out in your story, are set to produce more than $90 billion in excess cash. Which companies are we focused on here?
We're talking about the really big publicly listed oil companies, the ones that generally are referred to as the oil majors. So think Exxon, Chevron, BP Shell, and a couple of others.
And it's not just the largest Western energy companies that have seen their shares struggle to gain traction.
Which oil majors are underperforming, and what investor concerns could explain earnings skepticism?
The same goes for many others in that space as well.
Right. Smaller independent shale players have in some ways fared even worse. If you look at the broader energy index globally, it's really underperformed the S&P 500.
And this has a lot to do with companies not being in the habit of returning profits to investors.
Well, the big oil players have always been known for their dividends. I think it's more that investors have been worried that they won't be able to maintain that over the last few years as the oil price fell, particularly given that when prices were high back before 2014, they were really overspending. And investors just don't trust that they will manage their capital in a sensible, disciplined way going forward.
Many of the companies are also falling short of profit expectations. How can that be even with all the excess cash?
Well, it may be that investors have been a little bit over-exuberant in terms of expectations, but there are also unexpected things that can happen. And it's difficult to value an oil company and really delve into exactly what that profit should be.
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Chapters
6 chapters
1
What macroeconomic headlines open the episode and why do they matter?
0:05–0:25
2
How have U.S. new-home sales and inventory trends shifted recently?
0:25–0:54
3
What does the 2018 U.S. Trust Study reveal about wealthy women's philanthropy?
0:54–1:39
4
How is UPS preparing for holiday shipping and what cost changes should consumers expect?
1:39–2:16
5
Why are big oil companies sitting on nearly $100 billion in excess cash but not seeing stock gains?
2:16–3:07
6
Which oil majors are underperforming, and what investor concerns could explain earnings skepticism?
3:07–4:47
Speakers
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