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Phillips 66 (PSX) Up 7% 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 7% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Phillips 66 Beats Q1 Earnings on Midstream Performance

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.

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.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month. The consensus estimate has shifted 46.92% due to these changes.

VGM Scores

Currently, Phillips 66 has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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

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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