PSX

Digging into Phillips 66’s Results: Earnings Decline Not Tragic

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Dividend Growth Newsletter portfolio holding Phillips 66 (click ticker for report: ) announced slightly weaker than anticipated second quarter earnings Wednesday morning, which isn’t too surprising after the insight we received from peer Valero (click ticker for report: ). Revenue declined 8% year-over-year to $43.9 billion, which was actually above estimates but not materially important for Phillips 66. Earnings per share declined 33% to $1.50 per share, falling well short of consensus expectations. Free cash flow remained relatively strong at $597 million during the quarter, and year-to-date, it stands at $2.4 billion. Image Source: PSX 2Q 2013 Investor Presentation Where did Phillips 66 earnings weakness come from? Without question, it was the firm’s refining margin. Advantaged crude remained flat as … Read more

Valero Will Miss Big in the Second Quarter

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Refiner Valero (click ticker for report: ) preannounced weak second-quarter results Thursday afternoon. Including a $0.05 per share charge for spinoff-related expenses and other charges related to environmental and legal matters, the company plans to earn between $0.80 and $0.90 per share during the second quarter of 2013, nowhere near the consensus estimate calling for earnings of $1.27 per share and well short of last year’s $1.50 per share. The firm’s interim-update release was very brief, but Valero blamed “lower discounts for heavy sour crude oil, higher natural gas costs, higher costs to comply with the Renewable Fuels Standard, and turnaround and maintenance activity at the Quebec City, McKee, Meraux, and Port Arthur refineries.” Discounts for heavy sour crude oil … Read more

Dividend Growth Holding Phillips 66’s Earnings Boom

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Earlier this week, Dividend Growth Newsletter holding Phillips 66 (click ticker for report: ) reported strong first quarter results on the back of fantastic refining margins. Adjusted earnings per share surged 83% year-over-year to $2.19, handily exceeding consensus estimates. The firm generated over $1.4 billion in free cash flow which it returned to shareholders in part via the repurchase of 6.4 million shares for $382 million and $194 million in dividends. Refining profitability drove a high percentage of the earnings growth at Phillips 66, as refining profits doubled to $909 million. The firm realized a profit margin of $13.94 per barrel. Advantaged crude, which the firm purchases at a discount to relative global benchmarks, jumped 800 basis points year-over-year to … Read more

Exxon Mobil Struggles For Growth

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Supermajor oil producer Exxon Mobil (click ticker for report: ) reported lackluster revenue of $108.8 billion, which fell a bit shy of consensus estimates. Earnings per share increased 6% year-over-year to $2.12, exceeding consensus expectations. However, earnings were only modestly higher, growing 1% year-over-year to $9.5 billion. Unfortunately for Exxon, operating cash flow declined 30% compared to the same period a year ago, to $13.6 billion. This came at the same time the firm invested $11.8 billion in capital expenditures and exploration, thus free cash flow declined precipitously. Though Exxon is among the largest companies in the world, its earnings stream contains several moving parts and remains reliant on global oil prices. Exxon’s upstream segment struggled with lower volumes and … Read more

Refining Stocks Are Shaping Up to Have a Strong 2013

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A number of refiners recently reported strong results in their respective fourth quarters. We had been watching the group’s tremendous performance via Phillips 66 (PSX), a holding in our Dividend Growth portfolio, but let’s dig into the firm’s peers to highlight a few industry trends. Valero On Tuesday, Valero (click ticker for report: ) announced a “blowout” fourth quarter, with earnings growing to $1.82 from $0.08 per share, trouncing the consensus estimate. Revenue was roughly flat, so what drove such substantial earnings growth? CEO Bill Klesse said it best: “Also in the fourth quarter of 2012, we replaced all imported light foreign crude oils with cheaper domestic crude oils at our Gulf Coast and Memphis refineries. Since we expect U.S. … Read more

Dividend Growth Portfolio Holding Phillips 66 Caps Off 2012 with an Outstanding Fourth Quarter

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Dividend Growth Newsletter portfolio holding Phillips 66 (click ticker for report: ) announced another fantastic quarter Wednesday morning. The company has been one of the biggest winners in the portfolio of our Dividend Growth Newsletter. We expect to update our dividend report on the firm soon. Adjusted earnings per share jumped over 240% year-over-year to $2.06, smashing consensus estimates. Earnings for the year jumped 50% to $8.46, highlighting the considerable operating leverage inherent to the refinery business. Shares are now up over 90% since being spun off from ConocoPhillips (click ticker for report: ) in 2012. Cash flow generation was superb, as the firm raked in $1.3 billion in operating cash flow. $1 billion was used to reduce debt, leaving the … Read more

Phillips 66 Joins the MLP Boom

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Early Thursday morning, refiner and chemical producer Phillips 66 (click ticker for report: ) announced its capital-spending intention for 2013, which includes $3.7 billion in capital investment—up 6% compared to 2012. The firm also announced ambitions to raise $400 million for a minority stake in a new master limited partnership (MLP) IPO, which it anticipates will include transportation assets like pipelines, rail cars, as well as NGL products for transportation. Phillips 66 described the MLP as an opportunity to capitalize on the “North American oil and gas revolution.” MLPs tend to have favorable tax treatment for oil-transportation business models, and we think the new Phillips 66 MLP will be a unique play on one of the best-performing refiners. The MLP … Read more

Modest Valuation Upside Remains at Phillips 66

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Dividend Growth Newsletter portfolio holding Phillips 66 (click ticker for report: ) released positive news Friday. The refiner will raise its dividend 25% to $0.3125 per share beginning in the first quarter of 2013, and it also approved an additional $1 billion of share repurchases. Phillips 66 has been a standout performer since being distributed to shareholders of ConocoPhillips (click ticker for report: ) earlier this year, with the stock up nearly 65%. Refining has traditionally been one of the more volatile businesses of the oil and gas segment, and Phillips 66 has capitalized on a favorable cycle by generating strong earnings growth and solid cash flow. Refinery and marketing profits more than doubled during the firm’s most recent quarter, … Read more

A Dual Focus on Valuation and Yield Is the Best Way to Combat Changes in Future Dividend Tax Rates

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With a potential hike in the dividend tax rate just around the corner, there is no more important time than now for income investors to evaluate their existing portfolio holdings to determine whether they are well-positioned for a higher-tax environment. Assuming there are no changes to the current trajectory, the top dividend tax rate is expected to rise to 39.6% next year (up from 15% currently), and the highest-income earners will see a Medicare surtax on top of that. Evaluate All Aspects of a Dividend Investment First of all, we think those investing in high-yielders (firms) at any price (HYAAP) may be most affected by this change in tax rates. These high-yielders at any price (HYAAP) tend to be favorites of those at or near retirement, particularly given the paltry payouts on fixed … Read more

Downstream Profits Alleviate E&P Weakness at Exxon Mobil

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Diversified oil giant Exxon Mobil (click ticker for report: ) reported weak third quarter results Thursday morning. The firm saw revenue decline 7% year-over-year to $115.7 billion, which was slightly better than consensus expectations. Earnings per share fell just 2% year-over-year to $2.09, which also exceeded consensus estimates. Exxon’s third quarter reflected the divergence between E&P (exploration & production) versus downstream refining. However, unlike ConocoPhillips (click ticker for report: ), which spun-off Phillips 66 (click ticker for report: ), Exxon owns both businesses, thus allowing this quarter’s weakness in E&P to be offset by downstream operations. E&P (also known as upstream) earnings fell 29% year-over-year to $5.9 billion due to waning oil and gas production, which fell 7.5%. Chemical earnings … Read more