Revenues down, net profits up for Phillips 66 in 3Q14

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Phillips 66’s revenues down in 3Q14

In the previous article of the series, we discussed Phillips 66’s (PSX) earnings versus analysts’ estimates. In this article, we will look into the company’s revenues and earnings and why they moved relative to the same period in 2013.

Revenues Quarterly

The company’s revenues for 3Q14 went down 8% to $40.41 billion from $44.14 billion recorded in the year-ago quarter. This resulted primarily from 17% and 15% declines in revenues from its Refining and Midstream segment revenues, respectively.

Net income and margin upQuarterly net Income and Margins

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For 3Q14, Phillips 66 (PSX) recorded $1.18 billion net income, up 121% from $535 million recorded in 3Q13. The surge in net profit came largely from significant improvement in the Refining segment as well as from its Marketing and Specialties segment. In the Refining segment, net loss in 3Q14 turned into $558 million net profit.

Phillips 66’s net profit margin (or net profit as percentage of total revenues) also inflated to ~3% in 3Q14, from 1.2% in the year-ago quarter. Despite a fall in revenues, Phillips 66 was able to improve net income and margins in its latest quarter.

Refining segment margin and gain from asset sale

The increase in Phillips 66’s (PSX) net profit 3Q14 over 3Q13 was due to higher profits recorded in its Refining segment. In this segment, margin improvement was primarily driven by lower crude prices. Crude oil is an input to refining and thus, a lower crude price decreases operating cost and increases profit.

In addition, Phillips 66 recorded a $109 million deferred gain related to the sale of Immingham Combined Heat and Power Plant (or ICHP). Phillips 66 sold ICHP in July 2013 but deferred gain associated with the sale due to an indemnity provided to the buyer. ICHP belonged to Phillips 66’s Marketing and Specialties segment.

Diluted earnings increased to $2.09 per share in 3Q14, compared to $0.87 per share in 3Q13. Among its peers, Valero Energy (VLO), Tesoro Corporation (TSO), and Marathon Petroleum (MPC) all increased earnings in 3Q14 over 3Q13. All these are components of the Energy Select Sector Standard and Poor’s depositary receipt (or SPDR) exchange-traded fund (or ETF) (XLE).

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