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How Strong Is Phillips 66’s Earnings Model?

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Phillips 66’s earnings mix

Now let’s review Phillips 66’s (PSX) quarterly segmental dynamics. The company’s earnings fell to $0.3 billion in the first quarter of 2019. Its segmental earnings mix also changed in the quarter.

If we consider the combined earnings from the company’s Midstream, Chemical, and Marketing segments, we’ll find that they fell slightly from $0.8 billion in the first quarter of 2018 to $0.7 billion in the first quarter of 2019. These earnings represented an almost consistent stream of income for the company.

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In the same period, its Refining earnings were quite volatile. They fell from $110 million in the first quarter of 2018 to -$219 million in the first quarter of 2019 due to a sharp fall in the company’s refining margin and earnings driven by lower oil spreads. Let’s find out what this analysis implies.

Phillips 66’s diversified earnings model at play

Phillips 66’s earnings mix changed mainly because of the weaker refining margin environment, which dented its Refining earnings and its contribution to total earnings. However, in the same period, its Midstream, Chemical, and Marketing earnings supported its overall earnings.

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

Phillips 66’s diversified model could further solidify once significant projects in the company’s Midstream segment start contributing to its overall earnings.

Peers’ segmental performances

Valero Energy’s (VLO) operating earnings fell 62% year-over-year to $308 million in the first quarter of 2019 due to falls in its Refining and Ethanol earnings. VLO’s Renewable Diesel earnings also slumped in the quarter.

HollyFrontier’s (HFC) adjusted EBITDA fell from $316 million in the first quarter of 2018 to $282 million in the first quarter of 2019 due to falls in its Refining and Lubricants earnings partly offset by a rise in its Midstream earnings.

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