uploads///Segments

Have Phillips 66’s Segmental Dynamics Changed?

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Aug. 7 2018, Updated 8:02 a.m. ET

Phillips 66’s second-quarter earnings

In the second quarter, Phillips 66’s (PSX) total adjusted net income of ~$1.39 million rose 131.0% YoY. PSX’s Refining earnings rose from $233.0 million in the second quarter of 2017 to an adjusted profit of $911.0 million in the second quarter. This was due to its increased refining margins year-over-year.

PSX’s worldwide refining margin increased by $3.80 per barrel (45.0%) year-over-year to $12.30 per barrel in the second quarter.

Among Phillips 66’s (PSX) peers, Valero Energy (VLO) observed a rise in its gross refining margin from $8.70 per barrel in the second quarter of 2017 to $10.80 per barrel in the second quarter.

Marathon Petroleum’s (MPC) gross refining and marketing margin rose by $4.10 per barrel over the second quarter of 2017 to $15.40 per barrel in the second quarter.

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PSX’s segmental earnings contribution

The Refining segment made a contribution of 66.0% to the company’s total adjusted income in the second quarter. The second-highest contributor is the Chemicals segment, with 19.0% of the company’s total earnings. Its Chemicals and Midstream earnings rose 34.0% YoY and 100.0% YoY, respectively, in the second quarter.

The Midstream segment constituted 15.0% of PSX’s total earnings in the second quarter. PSX’s Marketing and Specialty segment contributed 14.0% to its total adjusted earnings in the second quarter. PSX’s Marketing and Specialty earnings fell 11.0% over the second quarter of 2017 to $195.0 million in the second quarter.

In short…

A stronger refining environment has boosted Phillips 66’s Refining segment’s contribution to its overall earnings in the second quarter. However, in a weaker refining environment—as in the past several quarters—its Midstream, Chemicals, and Marketing segments have supported PSX’s overall earnings. 

This trend implies that Phillips 66 is on the right path to achieve a diversified earnings model. This model could become further solidified once PSX’s major projects in these segments start contributing to its overall earnings.

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