Phillips 66 (PSX) Up 16.2% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Phillips 66 (PSX). Shares have added about 16.2% in that time frame, outperforming the S&P 500.

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

Phillips 66 Misses Q4 Earnings on Massive Refining Loss

Phillips 66 reported fourth-quarter 2020 adjusted loss per share of $1.16, wider than the Zacks Consensus Estimate of a loss of $1.09. The company reported adjusted earnings of $1.54 per share in the year-ago quarter.

Quarterly revenues totaled $16,768 million, down from the year-ago quarter’s $29,612 million. However, the top line beat the Zacks Consensus Estimate of $15,326 million.

The wider-than-expected loss was due to sinking demand of refined products caused by the coronavirus pandemic. Massive refining loss and decreased midstream profits affected its bottom line. This was partially offset by higher chemicals profit and realized marketing fuel margins in the international market.

Segmental Results

Midstream

The segment generated adjusted pre-tax quarterly earnings of $323 million, down from $405 million in the year-ago quarter. Profits from Transportation, DCP Midstream, NGL and Other significantly decreased in the fourth quarter. Lower pipeline and terminal volumes affected transportation.

Chemicals

Adjusted pre-tax earnings of $203 million were up from $173 million in the prior-year quarter. CPChem’s O&P business was supported by higher polyethylene margins. Its global O&P utilization rate came in at 101%.

Refining

It reported a huge adjusted pre-tax loss of $1,094 million against the year-ago earnings of $345 million. This underperformance was caused by challenging market conditions, and turnaround and maintenance activities. The segment’s realized refining margins on a worldwide basis fell to $2.18 per barrel from the year-ago quarter’s $9.50. Moreover, the same in Atlantic Basin/Europe and West Coast fell to $2.99 and $1.79 per barrel from the year-ago level of $7.06 and $10.22, respectively.

Marketing and Specialties

Pre-tax earnings decreased to $221 million from $287 million in the year-ago quarter.

While realized marketing fuel margins in the United States decreased to $1.37 per barrel from the year-ago quarter’s $1.51, the same in international markets increased to $5.07 from the year-ago level of $3.35.

Costs and Expenses

Total costs and expenses for the fourth quarter significantly decreased to $17,459 million from $28,546 million in the year-ago period. The cost of purchased crude oil and products, operating expenses, and SG&A costs declined from the year-ago levels. Notably, impairment charges significantly increased on a year-over-year basis for the fourth quarter.

Financial Condition

For the reported quarter, Phillips 66 generated $639 million of cash from operations. Its capital expenditures and investments totaled $506 million. It paid dividends of $393 million in the reported quarter.

As of Dec 31, 2020, cash and cash equivalents were $2.5 billion, up sequentially from $1.5 billion. Total liquidity of the company was $7.8 billion. Consolidated debt rose to $15.9 billion from $14.5 billion in third-quarter 2020. Its debt to capitalization was 42%.

Outlook

It estimates capital budget for 2020 to be $1.7 billion. Its South Texas Gateway Terminal project ramp up is expected to be completed by first-quarter 2021. The terminal will have two deepwater docks with a throughput capacity of up to 800,000 barrels per day (bpd). It will also have a storage capacity of 8.6 million barrels.

Moreover, the company is going ahead with the San Francisco Refinery plans in Rodeo, CA, which will likely meet the growing demand for renewable fuels.

It completed expansion projects of two new fractionators of 150,000 bpd each at the Sweeny Hub in 2020. The move boosted total fractionation capacity at the site to 400,000 bpd, supported by long-term commitments from clients. It intends to resume construction work for the fourth fractionator in the second half of this year. Post completion of the same, the Sweeny Hub will have a fractionation capacity of 550,000 bpd.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month. The consensus estimate has shifted -551.85% due to these changes.

VGM Scores

At this time, Phillips 66 has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second 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 this revision indicates a downward shift. It's no surprise Phillips 66 has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

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