Phillips 66 Earnings Suffer from Higher Crude Prices

Energy

Published: October 30, 2013 9:25 am

Phillips 66 (NYSE: PSX) reported third-quarter 2013 results before markets opened Wednesday morning. The oil refiner posted adjusted diluted earnings per share (EPS) of $0.87 on revenues of $44.85 billion. In the same period a year ago, the company reported EPS of $2.97 on revenues of $43.91 billion. Third-quarter results also compare to the Thomson Reuters consensus estimates for $0.94 EPS and $37.26 billion in revenues.

Phillips 66 did not provide guidance in its earnings release, but the consensus estimates for the fourth quarter call for EPS of $1.11 on revenues of $39.17 billion. For the full-year, the consensus estimate calls for EPS of $5.92 on revenues of $179.1 billion.

The company’s CEO said:

We ran well during the quarter. Weaker refining margins had a significant impact on our earnings. Chemicals posted strong earnings as a result of solid utilization rates and good margins. … We continue to capitalize on the rise of North American energy production, focusing investment in the rapidly growing midstream and chemicals sectors.

The company’s refining business posted a third-quarter loss of $2 million, compared with a profit of $1.5 billion in the year-ago quarter. The loss was the result of lower realized refining margins driven by a 40% decline in the average worldwide market crack spread and a tightening of crude differentials. The cost of renewable energy credits not recaptured in the sales price also reduced margins.

Phillips 66 noted that it will build a rail terminal at its Ferndale, Wash., refinery that will accommodate an additional 30,000 barrels a day of “advantaged” crude from the Bakken shale region. The company also is building a rail terminal at its Bayway refinery in New Jersey to enable it to receive another 75,000 barrels a day of North American crude.

The company also is expanding its export facilities over the next several years from a current capability to export 340,000 barrels a day of refined products to a total of 500,000 barrels a day.

Compared with Valero Energy Corp. (NYSE: VLO), Phillips 66 showed a roughly equal earnings picture. Third-quarter earnings at Phillips 66 dropped from $1.6 billion in the year-ago quarter to $535 million. At Valero, operating earnings fell from $1.3 billion to $532 million.

Unlike Valero, Phillips 66 did not say anything about improved differentials going forward. If the company does not refer to that during its conference call, the outlook for the fourth quarter could be weakened even more.

The company sourced 66% of its crude feedstock from advantaged sources, compared with 68% in the second quarter. As noted, the narrower differential really hurt profits.

Phillips 66 shares were down about 2.3% in premarket trading, at $62.70 in a 52-week range of $44.94 to $70.52. Thomson Reuters had a consensus analyst price target of around $69.25 before this report.

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