Phillips 66 Earnings Fail to Impress

Zacks

Phillips 66 (PSX) posted adjusted third quarter 2013 earnings of 87 cents per share, missing the Zacks Consensus Estimate of 91 cents by 4.4%.

The quarterly earnings compare unfavorably with $2.97 per share earned a year ago. The decline was mainly due to lower refining margins partially compensated by higher profits from the chemicals business.

Also, during the reported quarter, the company successfully completed the initial public offering of its master limited partnership Phillips 66 Partners (PSXP), to unlock value of its midstream business.

Segment Results

Midstream


The segment generated adjusted earnings of $148 million compared with $88 million in the comparable quarter last year. The increase was backed by improved margins resulting from higher throughput fees and volume growth.

Chemicals

The segment generated adjusted earnings of $262 million compared with $275 million in the comparable quarter last year. Higher costs and lower volumes were responsible for the decline, which was partially offset by improved margins at the Olefins and Polyolefins business.

Refining

The segment digested a loss of $2 million compared with earnings of $1.5 billion in the year-ago quarter. The dismal results can be traced to to lower realized refining margins, owing to approximately 40% decline in the average worldwide market crack spread. Realized margins also decreased due to tightening crude differentials, particularly in the Gulf Coast, Central Corridor and Western/Pacific regions.

Marketing and Specialties (M&S)

Segmental earnings were $240 million, up $142 million from the same quarter last year. The segment benefited from higher margins and decreased costs.

Financial Condition

In the reported quarter, Phillips 66 generated $1.9 billion of cash from operations, $1.1 billion in proceeds from asset dispositions and $404 million in net proceeds from Phillips 66 Partners' initial public offering.

As of Sep 30, 2013, cash and cash equivalents were $5.9 billion, with a year-to-date annualized return on capital employed ratio of 15% and a year-to-date annualized adjusted return on capital employed (:ROCE) of 14%.

Zacks Rank

The stock retains a Zacks Rank #4 (Sell). However, there are certain Zacks Ranked #1 stocks – Matador Resources Co. (MTDR) and Northern Oil and Gas, Inc. (NOG) – that appear rewarding in the short term.

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