Phillips 66 Continues Strong Growth

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Phillips 66 PSX reported first-quarter adjusted earnings of $1.4 billion compared with $764 million a year ago. All segments with the exception of the midstream segment posted improved adjusted earnings. The refining segment saw adjusted earnings rise to $909 million from $454 million a year earlier thanks to higher product margins and greater throughput of cost-advantaged crude. During the quarter, Phillips 66 increased its throughput of advantaged crude, including Canadian heavy, WTI-based crude and discount unconventional crude, to 68% of the total from 60% last year.

Phillips 66’s midstream segment saw first-quarter adjusted earnings fall to $83 million from $108 million a year ago as continued low NGL prices and volumes hurt results. Phillips 66 continues to move ahead with an MLP structure, Phillips 66 Partners LP, for its non-DCP midstream assets including transportation assets formerly consolidated in the refining segment. The IPO is expected to occur in the second half of this year.

The chemicals segment reported adjusted earnings of $282 million compared to $217 million a year earlier thanks to improved margins. Phillips 66’s chemical operations continue to provide strong earnings and cash flow contribution while offering diversification from the refining segment and differentiation from peers. The segment also holds attractive growth opportunities with $6-8 billion of potential growth projects over the next five years to further capitalize on discount feedstock in the U.S. and Middle East. In the near term, earnings should benefit from the full startup of the polymers plant in Saudi Arabia later this year.

The company continues to return cash to shareholders as well with increased dividends and share repurchases. The most recent dividend increase was 25%, resulting in a forward yield of 2.1%. Meanwhile, there is about $1.3 billion remaining on the current $2 billion repurchase authorization.

The proposed growth projects should lead to greater cash flow growth while the projects to increase throughput of advantaged crude require little capital relative to the level of margin uplift they provide. As a result, investors expect continued strong free cash flow generation from Phillips 66 in the coming years.

 

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