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The London 2012 boxing competition has barely been underway, but one heavyweight has already taken it on the chin. BP (LSE:BP.) was rocked by a solid punch that started its share price bleeding after the company exposed its Second Quarter results. Shares dropped 19.85p to 424.60 by midday. Obviously shaken, CEO Bob Dudley acknowledged the blow whilst still displaying some fancy “Footsie work” going into the next round.
Rounds 1 and 2
The first of four rounds for BP in this fiscal year was rather inauspicious, with revenues and profits down compared to the same round last year. It was clear that the company had not yet fully recovered from the impact of the Deep Water Horizon blow that had buckled its knees earlier.
When BP came out for Round Two, it was looking a little worse for wear, but there was still a look of determination in its eyes that it would regain its former glory. But it ended the round with a black eye in its replacement cost profit, falling down to $238 million from $5,407 million year on year and from $4,929 million in the first round. First half profit was $5,167 million down 53% from $11,018 million in FY2011. Adjusted underlying profit was $8,484 million compared to $11,209 million year on year. Bottom line: BP finished Round 2 with a net loss of $1.4 billion.
Net cash from operating activities was $4.4 billion for the quarter and $7.8 billion for the first half. Cash from operations last year was $7.8 billion and $10.3 billion, respectively. This includes costs related to the Gulf oil spill. Net debt increased to $31.7 billion from $27.0 billion last year.
Ringside Comments
“Truly awful,” said one analyst. “Lacklustre at best,” observed another. A third said the Second Round performance from the champ was “weaker than expected.” One chap saw it as “very, very disappointing.” Yet another noted that every fighter in the competition had taken some tough blows from the average crude price dropping from $117 per barrel to $108.29 per barrel over the past year. Others noticed that income had dropped $630 million in a pre-Olympic bout with JV partner TNK-BP in Russia that has ended up in court. BP is calling for a rematch, but hinted that it would be open to a reasonable settlement outside of the ring.
Executive Perspectives
Bob Dudley, CEO, “We recognize this was a weak earnings quarter.” He ought to. He was the one taking the shots. But his drive to win was indicated when he said, “This is a company that has faced some tough conditions, but is heading in the right direction for the long term.” He added that “We expect earnings momentum to build . . . as high value production comes back on line, and as the impact of new projects ramps up.”
The Road Ahead
BP’s strategy for the future is to lose weight and become a more agile. It is well on its way, having sold about $24 billion in assets in the last two and a half years, and hoping to shed another $14 billion by the end of 2013. Bob Dudley described the strategy as “value over volume.”
