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Has Phillips 66 Created a Diversified Earnings Model?

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Changes in Phillips 66’s earnings mix

In the previous part of this series, we discussed Phillips 66’s (PSX) improving liquidity position. In this part, we look at Phillips 66’s evolving segmental dynamics. The company’s earnings rose steeply to $1.5 billion in Q3 2018. Though Phillips 66’s overall earnings have risen, the company’s segmental earnings mix has changed.

Phillips 66’s Refining segment, which contributed 16% to overall earnings in Q1 2018, contributed 63% in Q3 2018. The Refining segment’s earnings constituted the majority of the company’s total earnings, which the Midstream, Chemical, and Marketing segments’ contribution to total earnings declined in the third quarter. Phillips 66’s Midstream and Chemical segments’ contributions fell from 41% each in Q1 2018 to 17% and 14%, respectively, in Q3 2018. Also, the Marketing segment’s contribution fell from 31% to 19% in the same period. Other expenses dented earnings by 12% in Q3 2018.

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Phillips 66’s diversified earnings model in play

Phillips 66’s earnings mix changed mainly because of the stronger refining margin environment, which boosted the company’s Refining earnings. However, in a weaker refining environment like in Q1 2018, Midstream, Chemical, and Marketing segments’ earnings supported Phillips 66’s overall earnings.

In short, Phillips 66’s earnings mix suggests that the company has successfully created a diversified earnings model capable of supporting the company’s earnings in a weaker refining environment, a favorable situation for the company.

Phillips 66’s diversified model could get further solidified once major projects in the company’s Midstream segment start contributing to the overall earnings.

In the next parts of this series, we’ll review the operational performance details of Phillips 66’s Refining segment. We’ll discuss the company’s regional refining margin trend and refining yield trend.

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