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Phillips 66 (PSX) Q1 Earnings Beat on Midstream Performance

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Phillips 66 (PSX - Free Report) reported first-quarter 2020 adjusted earnings per share of $1.02, beating the Zacks Consensus Estimate of 63 cents, courtesy of contributions from Midstream and Marketing, and Specialties businesses. Moreover, the bottom line rose from the year-ago figure of 40 cents due to higher realized marketing fuel margins in both the United States and international markets.

Quarterly revenues totaled $21.2 billion, down from the year-ago quarter’s $23.7 billion. Moreover, the top line missed the Zacks Consensus Estimate of $22 billion.

In the first quarter, the company started full operations on the Gray Oak Pipeline. It has also incorporated a storage capacity of 2.2 million barrels of crude oil at the Beaumont Terminal.

Phillips 66 Price, Consensus and EPS Surprise

Phillips 66 Price, Consensus and EPS Surprise

Phillips 66 price-consensus-eps-surprise-chart | Phillips 66 Quote

Segmental Results

Midstream

The segment generated adjusted pre-tax quarterly earnings of $460 million, up from $316 million in the year-ago quarter. While profits from NGL and Other, and DCP Midstream significantly increased, the same from transportation marginally decreased.

Chemicals

Adjusted pre-tax earnings of $193 million were down from $227 million in the prior-year quarter. CPChem’s SA&S business was affected by lower margins and higher turnaround activity. However, backed by strong demand, CPChem’s O&P business ran at 98% utilization.

Refining

Adjusted pre-tax loss of $401 million widened from the year-ago loss of $219 million.  This underperformance was attributed to reduced volumes and weak margins. The segment’s realized refining margins on a worldwide basis fell to $7.11 per barrel from the year-ago quarter’s $7.23. Moreover, the same in Atlantic Basin/Europe and West Coast fell to $2.38 and $4.80 per barrel from the year-ago level of $7.76 and $6.25, respectively.

Marketing and Specialties

Pre-tax earnings surged from $205 million in the year-ago quarter to $488 million.

Realized marketing fuel margins in both the United States and international markets increased to $2.08 and $8.53 per barrel from the year-ago quarter’s $1.06 and $3.80, respectively.

Costs and Expenses

Total costs and expenses in the first quarter increased marginally to $23,722 million from $23,318 million in the year-ago period. While cost of purchased crude oil and products, and SG&A expenses declined from the year-ago levels, operating expenses and impairments increased.

Share Repurchases

Although it suspended share buybacks in March, the company returned capital worth $839 million to stockholders through dividend payouts of $396 million and share repurchases of $443 million.

Financial Condition

In the reported quarter, Phillips 66 generated $217 million of cash from operations. Its capital expenditures and investments totaled $923 million.

As of Mar 31, 2020, cash and cash equivalents were $1.2 billion, reflecting a sequential decline from $1.6 billion. Total debt rose to $13 billion from $11.8 billion in fourth-quarter 2019. The company’s debt to capitalization was 35%. Notably, it has secured additional liquidity of $3 billion through term loan and senior notes.

Outlook

The company is adding two 150,000 bpd fractionators for expanding the Sweeny Hub. The additional fractionators, backed by long-term commitments, are expected to commence operations in the fourth quarter. Following the expansion project completion, Sweeny Hub will have a massive 400,000 bpd fractionation capacity. The company is also incorporating 7.5 million barrels of storage capacity at Clemens Caverns in the Sweeny Hub.

It will defer the Red Oak Pipeline and Sweeny Frac 4 projects. The company has postponed its FID on the AEC Pipeline. It has also reduced refining productions due to energy demand destruction as a result of coronavirus-induced lockdowns.

Zacks Rank & Stocks to Consider

Currently, Phillips 66 has a Zacks Rank #5 (Strong Sell). Some better-ranked players in the energy space include RGC Resources Inc. (RGCO - Free Report) , Murphy USA Inc. (MUSA - Free Report) and Comstock Resources, Inc. (CRK - Free Report) , each holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

RGC Resources’ 2020 earnings per share are expected to rise 14.8% year over year.

Murphy USA’s 2020 earnings per share are expected to rise 48.2% year over year.

Comstock Resources’ 2020 sales are expected to gain 30.8% year over year.

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