Phillips 66 (PSX) Earnings & Analysis

Latest quarter

Phillips 66 reported Q3 revenue of $50.5 billion, up from $34.5 billion a year earlier. Its total revenues and other income were $51.51 billion, above the consensus estimate of $33.72 billion. Adjusted earnings per share were $14.08, compared with the consensus estimate of $11.97.

The filing attributed the increase in net income primarily to improved realized refining margins and an impairment recorded in the prior-year quarter. Phillips 66 said its composite market crack spread, an indicator of refining margins, averaged $60.17 per barrel, up from $23.64 per barrel a year earlier. It attributed the increase primarily to low product inventories and geopolitical events that reduced global supply.

Refining results increased, while Chemicals benefited from higher sales prices, mainly for polyethylene. Renewable Fuels results rose primarily because of higher regulatory credit values; Marketing and Specialties results fell, partly because of lower fuel margins, the filing said.

Phillips 66 reported $7.3 billion in operating cash flow and $6.6 billion in free cash flow, compared with $637.0 million in free cash flow a year earlier. The company said higher earnings, primarily from realized refining margins, drove operating cash flow.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

On the call, Brian Mandell, executive vice president for Marketing, Commercial and Renewable Fuels, said Phillips 66 saw U.S. gasoline and diesel demand down, although he said overall demand was holding up. Internationally, he said it was harder to distinguish reduced demand from a lack of supply.

Asked about crude pricing, Mandell said global diesel margins had allowed refiners to pay more for West Texas Intermediate crude. He said freight costs had pressured heavy crude prices and that Phillips 66’s refining network had pipeline access to Canadian crude. Mandell added that freight rates were expected to be higher in Q4 than in Q3.

On refining margins, Mandell said the company was watching economic conditions, wars, refinery outages, Chinese exports and freight rates. He said there was reason to believe margins would maintain their current levels through most of the following year. He also pointed to winter blending, fuel margins and commercial optimization as factors in how much value Phillips 66 captures from the market.

Discussing investment, CEO Mark Lashier said Western Gateway was expected to create opportunities across multiple segments. He said projects must compete on a risk-adjusted basis and that Phillips 66 had benefited from more than $50 million of near-term annual operating and commercial synergies from the WRB transaction.

Don Baldridge, executive vice president for Midstream and Chemicals, said producer volumes were underpinning the Permian outlook. Asked about capacity, he said Phillips 66 had access to third-party fractionation and expected Permian volume growth in 2027. Lashier said CP Chem’s Middle East assets were operating below full rates, while its other assets were running to meet demand.

CFO Kevin Mitchell said Phillips 66 reduced debt by $2 billion during the quarter and paid a $500 million bond maturity on October 1. Lashier said the company remained committed to returning greater than 50% of net operating cash flow, excluding working capital, to shareholders.

Guidance

Phillips 66 said it now expects 2027 capital expenditures and investments to exceed its previously communicated target of approximately $2.5 billion, following the Western Gateway investment decision and other project approvals. The company said the amount and timing of the increase remain subject to finalizing the 2027 capital budget.