Phillips 66 Q2 Boosted by Refining and Marketing; Shareholder Returns Resume and Set to Increase

Phillips 66 reported second-quarter adjusted earnings of $3.3 million compared with $329 million a year ago led by improvement in refining and marketing earnings that offset declines in midstream and chemical earnings. With the earnings increase came debt reduction and greater shareholder returns. Debt fell to $13.0 billion (net debt/capital of 29%) as the company continues to retire debt ($1.45 billion April) added during the last market downturn in 2020. Given the progress toward its $12 billion debt target, it resumed repurchases during the quarter, as previously announced, which it had suspended in 2020. It has $2.5 billion on the existing repurchase authorization. Management also increased the dividend by 5% in May as it indicated it would do. We expect share repurchases to increase in the coming quarters given the very strong market conditions and lower debt levels. Over the long term, management aims to reinvestment 60% of cash flow and return 40% to shareholders in dividends and repurchase, while targeting steady dividend growth.