Phillips 66 (PSX +0.72%), an energy company with a focus on the refining, midstream, and chemical sectors, released its fourth-quarter earnings results on Jan. 31. The company reported an adjusted loss per share of $0.15, significantly missing analysts' consensus expectation for a $0.03 loss. GAAP earnings for the quarter were $8 million, while on an adjusted basis, the company lost $61 million. Revenue for the quarter was $33.986 billion, about 1% under the projected $34.324 billion. Those results were driven by tough market conditions and strategic adjustments, particularly in the refining segment.
| Metric | Q4 2024 | Q4 2024 Analysts' Estimate | Q4 2023 | % Change |
|---|---|---|---|---|
| GAAP EPS | $0.01 | N/A | $2.86 | (99.7%) |
| Adjusted EPS | ($0.15) | ($0.03) | $3.09 | N/A |
| Revenue | $33.986 billion | $34.324 billion | $38.739 billion | (12.3%) |
| Adjusted EBITDA | $1.130 billion | N/A | $2.696 billion | (58.1%) |
| Cash flow from operations | $1.198 billion | N/A | $2.190 billion | (45.3%) |
Source: Analysts' estimates for the quarter provided by FactSet.
Phillips 66 Business Overview
Phillips 66 operates primarily in the energy sector, with a significant presence in refining, midstream logistics, chemicals, and emerging fields like renewable fuels. The company engages in refining crude oil into petroleum and petrochemical products. Its midstream segment focuses on the transportation and marketing of natural gas and natural gas liquids (NGLs). The chemicals segment, mainly through its Chevron Phillips Chemical Company joint venture, produces petrochemical products. Additionally, the company is making strategic moves toward growing its renewable fuels business, a process that involves converting some existing refinery operations to support cleaner energy initiatives.
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Key Data Points
Recently, Phillips 66 has concentrated on expanding its midstream operations, particularly the NGL business, to build a more robust transportation and processing network vital for its operations. Key success factors for Phillips 66 will include refining efficiency, effective use of its chemical production capacity, and the expansion of its renewable fuel production capabilities to meet demand for sustainable energy solutions.
Quarterly Results Breakdown
The fourth quarter saw Phillips 66 grappling with numerous challenges across its operations. The company's overall adjusted loss per share of $0.15, contrasted with expectations of a $0.03 loss. This was largely attributed to underperformance in the refining segment, where a drop in realized margins led to a hefty adjusted pre-tax loss of $759 million. Contributing factors included unfavorable crack spreads (a metric indicating the difference between the price of a barrel of crude oil and the total sale prices of the refined products that come from it) and $230 million worth of accelerated depreciation costs relating to its Los Angeles Refinery.
In contrast, the midstream segment posted improved quarter-over-quarter performance due to higher margins and volumes in the natural gas liquids business. Phillips 66 announced record volumes in NGL fractionation and liquified petroleum gas (LPG) exports, reflecting both operational strength and healthy demand in this segment. The midstream segment booked adjusted pre-tax income of $708 million, illustrating its strategic importance to the company.
The marketing and specialties segment recovered from its third-quarter losses, posting $252 million in earnings, though these gains were tempered by seasonally lower margins, and on an adjusted basis, its earnings declined both sequentially and year over year. Meanwhile, the chemicals segment experienced a sharp decline in adjusted pre-tax income, decreasing from $342 million in the prior quarter to $107 million, primarily because of increased maintenance costs. On a year-over-year basis, however, pre-tax income rose by $1 million. The burgeoning renewable fuels division showed progress with improved margins, aided by operations at the Rodeo Complex.
Strategic Shifts and Future Outlook
Phillips 66 is actively pursuing initiatives to enhance its asset base and strategic position. The company is focused on expanding its midstream capacities, evidenced by its agreement to acquire EPIC's NGL business. Those assets are expected to be earnings accretive upon completion of the deal. In terms of refining operations, the company is pursuing regulatory compliance and sustainability through the Los Angeles Refinery's transition to renewable fuels.
The company's commitment to asset dispositions exceeded its $3 billion target, generating capital to facilitate shareholder returns and debt reduction. In fact, Phillips 66 distributed $1.1 billion in the quarter to its shareholders via dividends and stock buybacks.
Looking forward, Phillips 66's management remains committed to strengthening its midstream and chemicals operations. While its near-term performance may be clouded by financial strains, the company aims to leverage its strategic movements to adapt over impending quarters, focusing on sustainable energy and asset optimization. Management did not provide specific guidance for upcoming fiscal periods. However, investors are encouraged to observe the progress in its midstream expansions and its transition to renewable fuel operations, which will be pivotal to Phillips 66's trajectory.
