Phillips 66 Earnings Suffer From Sharp Drop in Refining Margins

Oil refiner Phillips 66 (NYSE: PSX) reported fourth-quarter and full-year 2015 earnings before markets opened Friday. For the quarter, the refining company reported adjusted diluted earnings per share (EPS) of $1.31, compared with EPS a year ago of $1.63. Quarterly revenues totaled $22.03 billion, down from of $35.61 billion in the fourth quarter of 2014. The consensus estimates called for EPS of $1.25 on revenues of $29.86 billion.

For the full year, Phillips 66 reported EPS of $7.67 and revenues of $100.95 billion, compared with EPS of $6.62 in 2014 on revenues of $164.09 billion. Analysts expected EPS of $7.60 and revenues of $104.63 billion.

On a GAAP basis, Phillips 66 posted quarterly EPS of $1.20 on income of $1.58 billion. Adjusted EBITDA totaled $1.57 billion. Refining contributed $786 million to adjusted EBITDA, down from $1.82 billion sequentially and up from $746 million in the fourth quarter of 2014.

The company did not offer guidance in its earnings release, but consensus estimates call for first-quarter EPS of $1.38 on revenues of $17.04 billion. For 2016, EPS is forecast at $6.95 on revenues of $97.12 billion.
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CEO and chairman Greg Garland said:

Our financial performance in 2015 demonstrates the resiliency of our diversified portfolio in a low commodity price environment. We create value by focusing on operating excellence, enhancing Refining returns, and delivering on our Midstream and Chemicals growth programs. Our balance sheet is strong, and we maintain a disciplined approach to capital allocation. We remain firmly focused on these core priorities in 2016.

Refining margin fell by nearly 60% sequentially which the company attributed to a 35% drop in global market cracks compared with the prior quarter, from $21.44 per barrel in Q3 to $12.72 in Q4. Distillate cracks dropped from $15.67 to $12.86 per barrel. The sharp decrease indicates that falling retail prices, which typically lag drops in crude prices, have finally caught up refiners. When crude prices increase, however, pump prices for gasoline are much quicker to respond.

Shares of Phillips 66 closed up 1.3% on Thursday at $78.75, and were inactive early in Friday’s premarket session. The stock’s 52-week trading range is $68.84 to $94.12. The consensus target price for the shares was around $96.33 before the earnings report.