Phillips 66 Reinstates Repurchases on Strong Earnings, Debt Reduction Progress

Phillips 66 reported first-quarter adjusted earnings of $595 million compared with a loss of $509 million a year ago, lead by an improvement in chemicals and refining earnings. Debt was unchanged from year-end, but in April the company repaid $1.45 billion in debt. As a result, it plans to resume repurchases, which it had suspended in 2020. It has $2.5 billion on the exiting repurchase authorization. Management also indicated it would like to get back to a regular cadence of dividend increases as it continues toward its $12 billion debt target. Phillips 66’s shares have lagged pure-plan refiner peers who are more exposed to the current strong refining market and have been outpacing in shareholder returns. The restart of repurchases should close that gap somewhat, but with its diversified portfolio, Phillips 66 will not see the relative earnings boost from widening refining margins that peers will. Still, we view shares as undervalued and it could be in a better position if the upcycle ends more quickly than expected.