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Phillips 66 Earnings: Positive Update on Strategic Plan Results in Higher Shareholder Payouts

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Phillips 66 PSX reported third-quarter adjusted earnings of $2.1 billion, compared with $3.1 billion a year ago, largely because of weaker refining margins. Adjusted earnings for the refining segment fell to $1.7 billion from $2.9 billion a year ago on a decrease in realized margins to $18.96/barrel, from $26.87/bbl a year ago. Market margins weakened from the year before. Still, they remain well above midcycle levels, supporting strong earnings and shareholder returns.

While earnings came in slightly below market expectations, the larger news was positive, with management providing an update on its strategic progress, including increasing earnings growth and shareholder return targets. It increased its midcycle 2025 EBITDA growth target to $4 billion from $3 billion, increased its shareholder return target by year-end 2024 to $13 billion-$15 billion from $12 billion-$14 billion and increased its run rate cost and capital reduction to $1.4 billion from $1 billion. Finally, it plans to divest over $3 billion in noncore assets that will be used to support strategic initiatives, including shareholder returns.

We plan to incorporate the updated guidance and earnings into our model but do not anticipate a material change in our fair value estimate or narrow-moat rating. Shares are trading close to our fair value currently.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Allen Good

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Allen Good, CFA, is a director for Morningstar Holland BV, a wholly owned subsidiary of Morningstar, Inc. Based in Amsterdam, he covers the oil and gas industries. He is also chair of the Morningstar Research Services Economic Moat Committee, a group of senior members of the equity research team responsible for reviewing all Economic Moat and Moat Trend ratings issued by Morningstar.

Before joining Morningstar in 2008, he performed merger and acquisition advisory work for a middle-market investment bank. Before that, he spent several years at Black & Decker in various operational roles.

Good holds a bachelor’s degree in business from the University of Tennessee and a master’s degree in business administration from Kenan-Flagler Business School at the University of North Carolina. He also holds the Chartered Financial Analyst® designation.

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