What happened
Shares of Phillips 66 (PSX -0.35%) fell more than 5% by 12:30 p.m. ET on Tuesday. Weighing on the refining company's stock price were its lackluster fourth-quarter results.
So what
Phillips 66 reported $1.9 billion, or $4 per share, of adjusted earnings for the fourth quarter. That missed analysts' consensus estimate by $0.35 per share. While market conditions were strong in the quarter, they weren't as robust as in prior periods. That impacted the earnings of its chemicals and refining segments.
Adjusted pre-tax income from its chemicals segment declined from $135 million in the third quarter to $52 million in the fourth quarter. Driving the decline were lower margins and volumes. Meanwhile, refining earnings fell from nearly $2.9 billion to around $1.6 billion due to lower margins. Its realized margin plunged from $26.87 per barrel in the third quarter to $19.73 per barrel in the year's final period. Weighing on the refining margin was a lower crack spread -- the difference between the price it buys crude oil and sells refined products -- and weaker refined product prices.
On a more positive note, the company generated $4.8 billion of operating cash flow during the quarter. It returned $1.2 billion to shareholders via dividends and repurchases. Phillips 66 increased its dividend by 5% last year and authorized a new $5 billion repurchase program.
The company also continues to invest in expanding its business. It approved a $2 billion capital program, which includes spending to covert an existing refinery to produce renewable fuels. In addition, it recently agreed to buy the rest of DCP Midstream to enhance its natural gas liquids strategy.
Now what
Even though Phillips 66's results were below expectations, the energy company delivered strong earnings and cash flow for the year. That gave it more money to return to investors and invest in expanding its business. Those catalysts should enable the company to produce attractive total returns for investors in the coming years.
