Company Reports

Phillips 66 reported first-quarter adjusted earnings of $822 million versus $2.0 billion a year ago, falling short of market expectations. A sharp drop in refining earnings was largely the reason for the decline, although the midstream and marketing segments also reported declines. Adjusted earnings for the refining segment fell to $228 million from $1.6 billion a year ago on a decrease in realized margins to $10.91 per barrel, from $20.72/bbl a year ago, which was due in part to a weaker capture rate of 69% during the quarter. Ongoing conversion of the Rodeo facility to produce biofuels played a role—that project is due for completion later this year—and as such, we expect Phillips 66 to register improvements in the future given projects underway to improve capture by 5% by 2025.

Phillips 66 remains the most diversified independent refiner with greater interests in marketing, chemical, and midstream assets than peers. While the performance of its refining segment will be the primary determinant of earnings in the near term, the midstream segment will increasingly be the value driver over time as Phillips 66 aims to grow its potential midcycle EBITDA by $4 billion (initially $3 billion) to $14 billion by 2025.

Phillips 66 reported fourth-quarter adjusted earnings of $1.4 billion versus $1.9 billion a year ago, exceeding market expectations. A decline in refining margins from the year before was the primary culprit for the earnings decline as most of the other segments reported gains. Adjusted earnings for the refining segment fell to $797 million from $1.6 billion a year ago on a decrease in realized margins to $14.41 per barrel, from $19.73/bbl a year ago. However, the margin capture rate was an impressive 107% on a mix of favorable market conditions and commercial execution. These levels probably won’t be maintained in the near term, but Phillips 66 should see improvement over time, given projects underway to improve capture by 5% by 2025.

Phillips 66 remains the most diversified independent refiner with greater interests in marketing, chemical, and midstream assets than peers. While the performance of its refining segment will be the primary determinant of earnings in the near term, the midstream segment will increasingly be the value driver over time as Phillips 66 aims to grow its potential midcycle EBITDA by $4 billion (initially $3 billion) to $14 billion by 2025.

Phillips 66 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.

Phillips 66 remains the most diversified independent refiner with greater interests in marketing, chemical, and midstream assets than peers. While the performance of its refining segment will be the primary determinant of earnings in the near term, the midstream segment will increasingly be the value driver over time as Phillips 66 aims to grow its potential midcycle EBITDA by $3 billion to $13 billion by 2025.

Phillips 66 reported second-quarter adjusted earnings of $1.8 billion, compared with $3.3 billion a year ago. The decrease was largely due to weaker refining earnings as a result of lower refining margins, but was aided by stronger midstream earnings from the completed acquisition of DCP Midstream.

Phillips 66 remains the most diversified independent refiner with greater interests in marketing, chemical, and midstream assets than peers. While the performance of its refining segment will be the primary determinant of earnings in the near term, the midstream segment will increasingly be the value driver over time as Phillips 66 aims to grow its potential midcycle EBITDA by $3 billion to $13 billion by 2025.

Phillips 66 reported first-quarter earnings that exceeded market expectations as adjusted earnings increased to $2.0 billion compared with $595 million a year ago. The improvement was largely a result of much greater refining earnings with higher midstream and marketing earnings offsetting weaker chemical earnings.

Phillips 66 remains the most diversified independent refiner with greater interests in marketing, chemical, and midstream assets than peers. While the performance of its refining segment will be the primary determinant of earnings in the near term, the midstream segment will increasingly be the value driver over time as Phillips 66 aims to grow its potential midcycle EBITDA by $3 billion to $13 billion by 2025.

Phillips 66 reported fourth-quarter earnings that fell short of expectations as it didn’t as fully capitalize on the strong refining market as anticipated. Adjusted earnings increased to $1.9 billion compared with $1.3 billion a year ago as improved refining and marketing earnings offset declines in chemical earnings.

Phillips 66 remains the most diversified independent refiner with greater interests in marketing, chemical, and midstream assets than peers. While the performance of its refining segment will be the primary determinant of earnings in the near term, the midstream segment will increasingly be the value driver over time as Phillips 66 aims to grow its potential midcycle EBITDA by $3 billion to $13 billion by 2025.

Phillips 66 reported third-quarter adjusted earnings of $3.1 billion compared with $1.4 billion a year ago as improved refining and marketing earnings offset declines in chemical earnings. Although absolute debt levels increased with the consolidation of DCP Midstream to $17.7 billion during the quarter, net debt/capital of 29% was unchanged and is a level management is comfortable with. As such, it stepped up repurchases to $694 million from $376 million in the second quarter. Including dividends, it returned $1.2 billion to shareholders during the quarter. Management indicated it would continue with some debt reduction, but it is no longer the top priority for discretionary cash while it is committed to repurchases. Over the long term, management aims to reinvest 60% of cash flow and return 40% to shareholders in dividends and repurchases, while targeting steady dividend growth.

Second-quarter refining results produced a round of record profits after margins soared during the quarter. Although that will probably prove a peak as margins have since softened on concerns about weakening demand, they remain at relatively high levels, implying that strong, above-midcycle profits will continue. Refiners have been focused on reducing debt to prepandemic levels and have largely done so, thanks to the strong market. As such, we expect shareholder returns to increase in the second half of the year and stay robust into 2023 as the refining market remains strong.

While primarily an independent refiner, Phillips 66 also holds interests in marketing, chemical, and midstream assets that boast higher historical returns, add earnings stability, and differentiate the firm from its peers. The performance of its refining segment will largely determine Phillips 66's near-term fate. Over time, however, heavy investment in the midstream and chemical segments will increase those segments' importance.

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.

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.

We have increased our fair value estimates for the independent refiners under our coverage. After our update, HF Sinclair trades at the largest discount at 0.92 price/fair value, followed by Phillips 66 (0.93), Marathon Petroleum (1.05), and then Valero (1.16). Shares have performed strongly, up an average of 30% year to date given strong demand and improved margins. U.S. refiners have been a beneficiary of the fallout from the Russian invasion of Ukraine as restrictions on Russian crude and product exports have resulted in tight global product inventories, particularly distillate. Also, higher global natural gas prices, a key input to the refining process, have improved U.S. refiners’ relative competitiveness even as domestic natural gas prices have soared to their highest level in almost 14 years. Operating cost is relative and we expect the U.S. to remain at the low end of the cost curve even as it shifts higher globally. Meanwhile, RIN prices have waned since the start of the year, relaxing a headwind of the last few years. Our moat ratings are unchanged.

While primarily an independent refiner, Phillips 66 also holds interests in marketing, chemical, and midstream assets that boast higher historical returns, add earnings stability, and differentiate the firm from its peers. The performance of its refining segment will largely determine Phillips 66's near-term fate. Over time, however, heavy investment in the midstream and chemical segments will increase those segments' importance.

Like in the third quarter, Phillips 66 reported a large improvement in fourth-quarter earnings from the year before as market conditions continue to improve with an economic recovery. Adjusted earnings soared to $1.3 billion from a loss of $507 million a year ago largely due to the refining segment. Debt fell to $14.4 billion by year-end from $15.9 billion at the beginning of the year as management continues to target the $12 billion precoronavirus level. It plans to pay off another $1.5 billion debt in April, which should put it closer to its target. While it might take a couple of years to get there, management indicated share repurchases could resume around midyear if market conditions remain strong. We expect this will be the case given the continued recovery of the economy along with refined product demand. Combined with already low inventory levels, margins and utilization levels should remain high.