Phillips 66 (PSX +2.93%), a leading refiner and distributor of oil and natural gas products, released its third-quarter earnings report on Oct. 29. The company reported adjusted earnings of $859 million or $2.04 per share, which did not meet analysts' consensus earnings estimate of $2.31 per share. Revenue came in at $36.16 billion, a little light compared to analysts' expectations of around $36.31 billion.
| Metric | Q3 2024 Result | Q3 2024 Analyst Estimate | Q3 2023 Result | % Change |
|---|---|---|---|---|
| Adjusted EPS | $2.04 | $2.31 | $4.63 | (56%) |
| Net income | $346 million | N/A | $2.097 billion | (84%) |
| Refining pre-tax income | ($67 million) | N/A | $1.742 billion | N/A |
| Revenue | $36.16 billion | $36.31 billion | $40.32 billion | (10%) |
Source: Analyst estimates for the quarter provided by FactSet.
Business Overview
Phillips 66 is a diversified downstream energy company with a significant presence in chemicals, refining, and specialties. It also owns some midstream assets and has stakes in others. As it strives to adapt to energy sector transformations, Phillips 66 is actively investing in renewable energy and refining operations.
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Key Data Points
Its long-term strategic priorities also involve transitioning traditional refining operations towards renewable products and aligning with sustainability trends.
Quarter Highlights and Analysis
During the third quarter, the company's midstream segment experienced a decline in pre-tax income to $672 million from $753 million the previous quarter, though it rose from $581 million in the prior-year period. Seasonal maintenance costs took a toll on the bottom line. However, the acquisition of Pinnacle Midstream reinforced the company's long-term growth strategy.
The refining segment hit financial turbulence, reporting a $67 million loss, a substantial drop from its $302 million profit in Q2, and an even steeper decline from its $1.742 billion profit in the prior-year period. This was due to narrower margins as the crack spread fell. The crack spread is the difference between the price of crude oil and the market prices of the petroleum products which that oil gets refined into. Phillips 66 is also in the midst of remodeling certain refinery facilities, its San Francisco Refinery among them, towards renewable fuel production.
The chemicals business presented a contrasting trend as its adjusted pre-tax income reached $342 million from $222 million last quarter and $104 million in Q3 2023 due to improved margins and cost efficiencies. These gains align with the ongoing investments in petrochemical ventures, leveraging Phillips 66's stake in Chevron Phillips Chemical Company.
The marketing and specialties segment saw an increase to $583 million in pre-tax income, up from $415 million in Q2, but down from $605 million in the prior-year period. However, the renewable fuels unit continued to incur losses, which grew to $116 million from $55 million in Q2. In Q3 2023, that segment booked a profit of $22 million.
In the quarter, the company returned $1.3 billion to shareholders via dividends and stock buybacks. That brought its total return of cash to shareholders since July 2022 to $12.5 billion, which kept it on pace to hit its target of returning $13 billion to $15 billion to shareholders by the end of 2024.
Future Outlook
Phillips 66's management remains focused on meeting its capital return goals while advancing the energy company's operations. It anticipates that it will end the year with its debt ratios below their targets, and is evaluating potential strategic investments.
Investors are advised to monitor Phillips 66's renewable energy conversions, particularly the outcomes from the San Francisco Refinery, as regulatory demands push traditional energy entities towards cleaner energy adaptations. Maintaining alignment between capital investments and shareholder returns, management's strategic decisions about renewables and sustainability will remain pivotal.
