Occidental Buys Back Shares With Record Free Cash Flow

Occidental Petroleum announced a $3 billion share repurchase program thanks to its “record free cash flow” last year, according to President and CEO Vicki Hollub.

“We … delivered record free cash flow before working capital of $13.6 billion, which enabled us to retire more than $10.5 billion of debt and to repurchase $3 billion of common shares,” Hollub said during the company’s latest earnings call.

In Q4, Occidental generated more than $2.6 billion of free cash flow, which supported nearly $1.6 billion of balance sheet improvements. Hollub added that the firm repurchased $562 million of common shares in the quarter, completing Occidental’s 2022 share repurchase program.

In the same call, Occidental’s CFO Rob Peterson added: “Our vastly improved financial position, even compared to one year ago, enables us to begin allocating a greater proportion of excess free cash flow to our shareholders in 2023.”

Free cash flow is the sum of net cash provided by operating activities and net cash flow used in investing activities. This measure is useful when evaluating cash available for financing activities, including shareholder distributions, after investment in the business.

Occidental is among the holdings of the FCF US Quality ETF (TTAC), which aims to outperform the Russell 3000 through a fundamentals-driven investment process that selects about 150 stocks based on free cash flow strength. Its holdings are then weighted by a modified market-cap log transformation, allowing increased exposure to companies with the strongest proprietary free cash flow rankings.

Bob Shea, CIO of FCF Advisors, said he believes that “GAAP earnings have significant disadvantages” and “accounting practices allow a lot of leeway and discretion to management.” Meanwhile, “the ability to manipulate and distort free cash flow is a lot more difficult than with earnings.”

FCF Advisors specializes in free cash flow investment strategies, primarily through its Free Cash Flow Quality Model (FCFQM), a multi-factor model featuring a combination of quality measures informed by the firm’s research.

TTAC’s portfolio will also be rated with an ESG score, excluding companies with low ESG ratings. Firms with an extreme rise in share count and increase in leverage are excluded.

For more news, information, and analysis, visit the Free Cash Flow Channel.