There May Be Some Bright Spots In Occidental Petroleum's (NYSE:OXY) Earnings

Shareholders appeared unconcerned with Occidental Petroleum Corporation's (NYSE:OXY) lackluster earnings report last week. We think that the softer headline numbers might be getting counterbalanced by some positive underlying factors.

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In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. Occidental Petroleum expanded the number of shares on issue by 5.3% over the last year. That means its earnings are split among a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. Check out Occidental Petroleum's historical EPS growth by clicking on this link.

How Is Dilution Impacting Occidental Petroleum's Earnings Per Share (EPS)?

Unfortunately, Occidental Petroleum's profit is down 83% per year over three years. Even looking at the last year, profit was still down 53%. Sadly, earnings per share fell further, down a full 56% in that time. And so, you can see quite clearly that dilution is influencing shareholder earnings.

If Occidental Petroleum's EPS can grow over time then that drastically improves the chances of the share price moving in the same direction. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

How Do Unusual Items Influence Profit?

On top of the dilution, we should also consider the US$1.1b impact of unusual items in the last year, which had the effect of suppressing profit. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. When we analysed the vast majority of listed companies worldwide, we found that significant unusual items are often not repeated. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Occidental Petroleum to produce a higher profit next year, all else being equal.

Our Take On Occidental Petroleum's Profit Performance

Occidental Petroleum suffered from unusual items which depressed its profit in its last report; if that is not repeated then profit should be higher, all else being equal. But on the other hand, the company issued more shares, so without buying more shares each shareholder will end up with a smaller part of the profit. Considering the aforementioned, we think that Occidental Petroleum's profits are probably a reasonable reflection of its underlying profitability; although we'd be confident in that conclusion if we saw a cleaner set of results. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Case in point: We've spotted 4 warning signs for Occidental Petroleum you should be aware of.

Our examination of Occidental Petroleum has focussed on certain factors that can make its earnings look better than they are. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.