Dallas – Exxon Mobil Corp. reported Monday that it earned more money in 2005 than any other company, any year, ever.
But the Texas oil company isn’t bragging. Exxon took out advertisements in newspapers Monday to say its profit is relatively moderate – an unusual step for any company focused on keeping investors happy.
“Looking at the latest earnings figures for the energy industry, you might think our profit margins can’t be beat. But looks can be deceiving,” the company said in an ad that ran in five newspapers.
The company is responding to continued frustration among consumers and politicians that the oil industry is making big profits at a time when consumers are getting crunched by higher energy prices.
The way Exxon handled Monday’s earnings announcement is part of a larger trend at the company and across the industry to better explain how it makes and spends money.
The American Petroleum Institute on Monday also bought ads in seven national and political newspapers to say oil and natural-gas industry earnings are moderate, even as several major oil companies reported increases in profit last week.
For all of 2005, the company set a record. Net income rose 43 percent to $36.1 billion, on revenue of $371 billion. Exxon held the previous record for its 2004 earnings, $25.3 billion.
In the fourth quarter of 2005, Exxon’s net income rose 27 percent to $10.7 billion, on revenue of $99.7 billion.
The yearly rise was largely due to higher commodity prices and refining margins. The company gained financially despite slight declines in production due mostly to the impact of the Gulf Coast hurricanes.
Investors were happy. Exxon shares rose 3 percent Monday to close at $63.11.
But some consumers were not.
“I think part of these profits reflect prices that far exceeded their costs of manufacturing immediately after the hurricanes and remained high for longer than they needed to,” said Tom Smith of the consumer advocacy organization Public Citizen.
Exxon prefers to put the numbers into context by comparing profit margin, or how many cents a company makes in profit on each dollar of sales. In Monday’s ad, Exxon pointed out that the oil and natural-gas industry makes 8.2 cents on the dollar, just below the food, beverage and tobacco industry, and less than half of the pharmaceutical and biotechnology industry.
“We recognize that consumers worldwide want and need reliable supplies of affordable energy – to fuel their vehicles, light and heat their homes, and run their businesses. Our strong financial results will continue to allow us to make significant, long-term investments required to do our part in meeting the world’s energy needs,” Exxon chief executive Rex Tillerson said in a statement.
Exxon invested $17.7 billion last year in finding more oil and natural gas and bringing more fuel to market.
And while outsiders gawk at Exxon’s revenue, the company sought to spotlight its costs. The company’s expenses rose 21 percent last year to $312 billion, and it paid $98.6 billion in taxes.
Smith of Public Citizen doesn’t buy Exxon’s relative- size argument. He said that with giant size come the advantages of dealing in large volumes.
Some marketing experts doubted Exxon would sway the casual reader, either. Daniel Howard, chairman of the marketing department at Southern Methodist University, said most consumers don’t understand the nuance of profit margin and capital investment.
“Most consumers don’t even have a clear, conscious idea of what goes into profit margins. What they’re going to be concerned with, absolutely, is the dollar amount. ‘You made record profits, and I’m hurting from it,”‘ he said.
Betsy Gelb, a marketing professor at the Bauer College of Business at the University of Houston, said she doubts the public- relations campaign is meant for distrustful consumers but rather for those who are friendly toward the industry and find themselves defending it.
“You certainly know, as a sophisticated consumer, that something that comes out of someone’s mouth, one-on-one, over a cup of coffee or a beer, or in a carpool … is much more effective than something on a printed page,” Gelb said. “We think word of mouth is powerful stuff in the marketing world.”
The ad campaign is part of a larger effort by Exxon to explain itself to consumers. The company has stepped up its communication in the past few months, admitting it hasn’t done a good job of explaining itself. Exxon spokesman Dave Gardner said in light of the commodity-price spikes and profit increases of the past few months, the company has a responsibility to communicate with the public.
Senate committees also recently called on Exxon’s chief executive and other industry executives to explain their big profits, and lawmakers considered new taxes and restrictions on the oil industry. So far, none has become law.
