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Phillips 66 (PSX) Up 41.9% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Phillips 66 (PSX - Free Report) . Shares have added about 41.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Phillips 66 due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Phillips 66 Beats Q3 Earnings on Lower Operating Costs

Phillips 66 reported third-quarter 2020 adjusted loss per share of 1 cent, significantly narrower than the Zacks Consensus Estimate of a loss of 80 cents. The company reported adjusted earnings of $3.11 per share in the year-ago quarter.

Quarterly revenues totaled $16,299 million, down from the year-ago quarter’s $27,771 million. Moreover, the top line missed the Zacks Consensus Estimate of $17,766 million.

The better-than-expected earnings can be attributed to lower operating costs and expenses. Moreover, rising DCP Midstream profits and realized marketing fuel margins in the United States supported the results. However, the positives were partially offset by lower midstream, chemicals and weak refining contributions. Lower refined product demand due to the coronavirus pandemic affected its businesses in the third quarter.

It completed expansion projects of two new fractionators of 150,000 barrels per day (bpd) each at the Sweeny Hub. The move boosted total fractionation capacity at the site to 400,000 bpd, supported by long-term commitments from clients.

Segmental Results

Midstream

The segment generated adjusted pre-tax quarterly earnings of $354 million, down from $440 million in the year-ago quarter. While profits from Transportation and NGL and Other significantly decreased in the third quarter, the same from DCP Midstream rose year over year.

Chemicals

Adjusted pre-tax earnings of $132 million were down from $269 million in the prior-year quarter. CPChem’s O&P business was affected by lower polyethylene volumes and increased operating costs. Its global O&P utilization rate came in at 94%, affected by downtime at Gulf Coast facilities.

Refining

It reported adjusted pre-tax loss of $970 million against the year-ago earnings of $839 million. This underperformance was attributed to weak margins. The segment’s realized refining margins on a worldwide basis fell to $1.78 per barrel from the year-ago quarter’s $11.18. Moreover, the same in Atlantic Basin/Europe and West Coast fell to $1.65 and $2.23 per barrel from the year-ago levels of $11.48 and $10.11, respectively.

Marketing and Specialties

Pre-tax earnings decreased to $417 million from $498 million in the year-ago quarter.

While realized marketing fuel margins in the United States increased to $2.23 per barrel from the year-ago quarter’s $2.11, the same in the international markets decreased to $6.28 from the year-ago level of $6.37.

Costs and Expenses

Total costs and expenses for the third quarter significantly decreased to $17,649 million from $26,828 million in the year-ago period. The cost of purchased crude oil and products, operating expenses, and SG&A costs declined from the year-ago levels. Notably, impairment charges significantly increased for the third quarter.

Financial Condition

For the reported quarter, Phillips 66 generated $491 million of cash from operations. Its capital expenditures and investments totaled $552 million. It paid dividends of $393 million in the reported quarter.

As of Sep 30, 2020, cash and cash equivalents were $1.5 billion, down sequentially from $1.9 billion. Total liquidity of the company was $7 billion. Consolidated debt rose to $14.5 billion from $14.4 billion in second-quarter 2020. Its debt to capitalization was 39%.

Outlook

It estimates consolidated capital expenditure and investment for 2020 to be $3 billion. Its South Texas Gateway Terminal project ramp up is expected to be completed by first-quarter 2021. The terminal will have two deepwater docks with a throughput capacity of up to 800,000 bpd. It will also have a storage capacity of 8.6 million barrels.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -316.88% due to these changes.

VGM Scores

At this time, Phillips 66 has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Phillips 66 has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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