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Why Is Phillips 66 (PSX) Down 22.4% Since Last Earnings Report?

Zacks Equity Research

It has been about a month since the last earnings report for Phillips 66 (PSX). Shares have lost about 22.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Phillips 66 due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Phillips 66 Beats Q4 Earnings and Revenue Estimates

Phillips 66 fourth-quarter 2019 adjusted earnings per share of $1.54, beating the Zacks Consensus Estimate of $1.53, courtesy of contributions from chemical business. However, the bottom line plunged 68.4% from the year-ago figure of $4.87 due to soft refining margins.

Quarterly revenues totaled $29.6 billion, slightly down from the year-ago quarter’s $29.8 billion. However, the top line surpassed the Zacks Consensus Estimate of $27.3 billion.

Segmental Results

Midstream

The segment generated adjusted pre-tax quarterly earnings of $405 million, down from $409 million in the year-ago quarter.

Chemicals

Adjusted pre-tax earnings of $173 million were up from $152 million in the prior-year quarter.

Refining

Adjusted pre-tax profit of $345 million tanked from the year-ago quarter’s $2,008 million.  This underperformance can be attributed to higher costs pertaining to turnaround activities and weak margins.

The segment’s realized refining margins worldwide fell to $9.50 per barrel from the year-ago quarter’s $16.53 per barrel.

Marketing and Specialties (M&S)

Pre-tax earnings plunged from $592 million in the year-ago quarter to $287 million.

Realized marketing fuel margins both for the United States and International markets contracted to $1.51 per barrel and $3.35 per barrel, respectively, from the year-ago quarter’s $1.95 per barrel and $11.99 per barrel each.

Financial Condition

In the reported quarter, Phillips 66 generated $1.7 billion of cash from operations. The company returned capital worth $810 million to its stockholders through dividend payouts and share repurchases.

As of Dec 31, 2019, cash and cash equivalents were $1.6 billion along with debt of $11.8 billion. The company’s debt-to-capitalization ratio was 30%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -19.61% due to these changes.

VGM Scores

Currently, Phillips 66 has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Phillips 66 has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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