In a previous article, we examined ConocoPhillips's (NYSE: COP) Income Statement for the third quarter of 2009 and compared the figures on each line to our "look-ahead" estimates. Earnings in the September quarter fell from $3.40 to $1.00 per share. Using the financial statements in the earnings announcement, we have now updated a set of Cash Management, Growth, Profitability and Value metrics. Because Conoco's press release did not include a Balance Sheet, to compute preliminary gauge scores we assumed the company's various Assets and Liabilities had not changed since June.
We will adjust the metrics and the scores after ConocoPhillips files a 10-Q with the SEC.
Some background information about ConocoPhillips and the business environment in which it is currently operating can be found in the beginning of our look-ahead.
In summary, Conoco's latest quarterly results produced the following changes to the gauge scores:
- Cash Management: 9 of 25 (down from 10 in June)
- Growth: 0 of 25 (unchanged)
- Profitability: 5 of 25 (down from 6)
- Value: 4 of 25 (down from 8)
- Overall: 19 of 100 (down from 27)
| Cash Management | Sep 2009 | Jun 2009 | Sep 2008 | 5-Yr Avg |
| Current Ratio | 1.0 | 1.0 | 1.0 | 1.0 |
| LTD/Equity | 49.1% | 49.1% | 23.4% | 31.1% |
| Debt/CFO (years) | 2.9 | 2.0 | 0.8 | 1.2 |
| Inventory/CGS (days) | N/A | N/A | N/A | N/A |
| Finished Goods/Inventory | N/A | N/A | N/A | N/A |
| Days of Sales Outstanding (days) | 35.7 | 33.3 | 22.5 | 24.4 |
| Working Capital/Invested Capital | 0.0% | 0.0% | -1.0% | -1.3% |
| Cash Conversion Cycle Time (days) | 1.0 | -1.2 | -0.2 | 0.7 |
| Gauge Score (0 to 25) | 9 | 10 | 12 | 11 |
The Cash Management metrics are the ones most dependent on the Balance Sheet, so we will defer their review until the 10-Q is made available.
Readers interested in the Debt to Equity ratio are reminded Conoco increased its long-term debt from $22 billion to $27 billion in the fourth quarter of 2008. At about the same time, intangible asset impairment charges totaling $35 billion eliminated about 40 percent of Shareholders' Equity.
| Growth | Sep 2009 | Jun 2009 | Sep 2008 | 5-Yr Avg |
| Revenue growth | -39.4% | -19.7% | 41.3% | 2.6% |
| Revenue/Assets | 90.2% | 106.2% | 139.1% | 130.3% |
| Operating Profit growth | -13.0% | -5.7% | 20.2% | 0.5% |
| CFO growth | -60.3% | -39.5% | 13.7% | 1.1% |
| Net Income growth | N/A | N/A | 77.9% | 93.8% |
| Gauge Score (0 to 25) | 0 | 0 | 22 | 13 |
The Operating Profit rate is the annualized rate of growth in Operating Profit after Taxes over the last 16 quarters.
The plunge in Revenue is, of course, the result of the big drop in energy prices since the middle of 2008. The recent partial recovery in crude oil prices (much more than natural gas) has improved sequential quarter-to-quarter Revenue comparisons, but trailing year figures are dismal.Cash Flow has also fallen precipitously, and GAAP Net Income growth is N/A because the company experienced a huge loss in 2008 because of the impairment charges cited above.
| Profitability | Sep 2009 | Jun 2009 | Sep 2008 | 5-Yr Avg |
| Operating Expenses/Revenue | 93.4% | 91.0% | 88.3% | 88.9% |
| ROIC | 5.9% | 9.7% | 14.8% | 13.4% |
| Free Cash Flow/Invested Capital | -6.2% | -2.8% | 10.9% | 5.4% |
| Accrual Ratio | -15.8% | -15.2% | 3.4% | 1.8% |
| Gauge Score (0 to 25) | 5 | 6 | 9 | 9 |
With weak margins, the Operating Expense ratio has risen noticeably.Return on Invested Capital and the Free Cash Flow return have fallen for the same reasons.
The much lower Accrual Ratio would ordinarily be interpreted as a signal of higher quality earnings. However, it is due to last year's non-cash charges, which hit Net Income but not Cash Flow.
| Value | Sep 2009 | Jun 2009 | Sep 2008 | 5-Yr Avg |
| P/E | N/A | N/A | 5.8 | 8.1 |
| P/E vs. S&P 500 P/E | N/A | N/A | 0.3 | 0.5 |
| PEG | N/A | N/A | 0.3 | 0.8 |
| Price/Revenue | 0.4 | 0.3 | 0.4 | 0.5 |
| Enterprise Value/Cash Flow (EV/CFO) | 9.2 | 6.1 | 5.0 | 6.9 |
| Gauge Score (0 to 25) | 4 | 8 | 15 | 6 |
ConocoPhillips shares appreciated by 7.4 percent for the second consecutive quarter. In the July-to-September period, the rise was from $42.06 to $45.16.
Since GAAP earnings were hugely negative in the fourth quarter of 2008, there are "N/A" entries in the table above for the metrics based on the trailing-year Price/Earnings ratio.
If we back out $35 billion in fourth-quarter 2008 charges, the P/E multiple on a trailing-year basis would be about 10.7. Earnings would still be lower than in the prior four quarters, so the PEG ratio would remain N/A.
| Overall | Sep 2009 | Jun 2009 | Sep 2008 | 5-Yr Avg |
| Gauge Score (0 to 100) | 19 | 27 | 54 | 35 |
Conoco's gauge scores, which will be revised when the 10-Q is filed, continue to fall. The decline reflects the effects of lower energy prices and refining margins on the company's Revenue, Earnings, and Cash Flows, while the share price was rebounding.
Comparisons with prior periods are made more difficult by Conoco's decision in 2008 to mark down the value of its intangible assets and investments by approximately $35 billion (about 19 percent of total assets.)
On 7 October, Conoco announced an increase in its dividend (welcome but questionable), reduced capital expenditures, and intent to sell about $10 billion in "non-strategic" assets (assets now total around $150 billion, down from $190 billion in June 2008). During the conference call on 28 October, Chairman and CEO Jim Mulva indicated that the proceeds from asset disposals will be used to reduce debt. A 9 percent ownership interest in Syncrude is one of the assets on the block.
Full disclosure: Long COP at time of writing
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