Image Source: Phillips 66
By Brian Nelson, CFA
On January 31, Phillips 66 (PSX) reported messy fourth-quarter 2022 results. Adjusted earnings, however, came in at $1.899 billion, which showed a nice advance from the $1.298 billion mark in the year-ago period. The company’s adjusted earnings, however, fell from the $3.122 billion number it recorded in the prior sequential period. On a sequential basis, adjusted earnings in its refining business fell to $1.626 billion from $2.883 billion. Here’s what drove the weakness:
The decrease was due primarily to lower realized margins. Realized margins declined from $26.87 per barrel in the third quarter to $19.73 per barrel in the fourth quarter mainly due to lower market crack spreads and clean product differentials. The global market crack spread, excluding RIN costs, decreased from $28.18 per barrel in the third quarter to $23.58 per barrel in the fourth quarter.
Shares of Phillips 66 sold off on its fourth-quarter 2022 report as many were expecting stronger refining crack spreads, and better performance across its refining division in light of high gas prices. However, President Joe Biden’s war to reduce prices at the pump saw some success during the fourth quarter, but “gas prices have jumped for five straight weeks,” and stand at $3.505 as of January 31, 2023, up considerably from the $3.195 average a month ago. That means to us that Phillips 66’s refining operations should bounce back nicely in the current (first) quarter, as crude oil prices (USO) have been relatively flat the past month.
Image Source: Phillips 66
2022 was a fantastic year for Phillips 66. The company hauled in $10.81 billion in operating cash flow and spent $2.194 billion in capital expenditures and investments, resulting in free cash flow that was far greater than the shareholder distributions during the period. The strong free cash flow generation during the year allowed the company to pare down debt, while building its cash balance, to $6.1 billion. Its net-debt-to-capital ratio was 24% at the end of the year, and it put up 22% adjusted return on common equity for 2022. Shares yield ~3.9% at this time.
Phillips 66 16-page Stock Report (pdf) >>
Phillips 66 Dividend Report (pdf) >>
Tickerized for PSX, USO, CRAK, VLO, PBF, MPC, UGA
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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, RSP, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE, DIA, and RSP. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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