It's tough when your own business processes and success come back to bite you. That's exactly the picture that the Financial Times has painted for ExxonMobile selling off its 2,200 company-owned service stations. (Here's the link
, but it does require a paid subscription.) The problem is having the company name sitting above those big $4+/gallon price signs. The paper does make one point I've been considering - that oil companies may make a whole lot in gross dollars, but the real price setting comes at the well head, not at the pump.
However, let's take a look at the ExxonMobile financials
for a moment. When people have criticized it for windfall profits, it has argued that its prices have gone up as well - which is true, as the company buys gas from nations that own their oil. But look at the income statements from the last three years and you see an interesting pattern. If costs had gone up equivalently with profits, then the operating income should have been roughly the same as a percentage of total revenue.
In 2005, operating income as a percentage of revenue was about 16.4 percent, with net income before taxes being 9.7 percent. In 2006, that jumped to about 18.3 percent and 10.6 percent. And in 2007, the numbers were 17.8 percent and 10.0 percent. In other words, yes, the company has managed to raise its net income slightly. But even if you look at operating income, not net income, the jump is under 2 percent. A low price for regular gas in my neck of the woods is about $4.05 a gallon. Cut 2 percent and you get about $3.97 a gallon - a savings of 8 cents a gallon. Sorry to disappoint everyone who wants to raise taxes on "unjust" profits, but all that will do is transfer some of those profits to the government and not lower prices at the pump.
Labels: energy, finance, oil