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Phillips 66’s Earnings Surprise: EPS Rise, Beat Estimate

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Phillips 66 (PSX) posted its second-quarter earnings results on July 26. Its earnings rose 8% YoY in the second quarter compared to analysts’ estimate of a 2% YoY fall.

Phillips 66’s second-quarter revenue of $28.5 billion surpassed analysts’ estimate of $28.3 billion. Its adjusted EPS stood at $3.02, which exceeded analysts’ mean estimate of $2.74.

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Phillips 66 earnings review

Phillips 66’s adjusted earnings rose 7% YoY to $1.5 billion in the second quarter. Its earnings rose due to YoY rises in its Midstream and Marketing earnings partially offset by YoY falls in its Refining and Chemicals segments.

Phillips 66’s Refining earnings fell 17% YoY to $0.9 billion in the second quarter. Lower refining margins led to subdued earnings in the segment. The company’s realized refining margin contracted 7% YoY to $11.4 per barrel in the quarter. The West Coast refining margin contracted the most in the period. Phillips 66’s Chemicals earnings fell 15% YoY. In contrast, its Midstream earnings rose 78% YoY, and its Marketing earnings rose 39% YoY in the quarter

In the second quarter, Phillips 66 returned $861 million to its shareholders in the form of dividends ($406 million) and share repurchases ($455 million).

Why Phillips 66’s refining margin slumped

Phillips 66’s worldwide refining margin contracted $0.9 per barrel YoY to $11.4 per barrel in the second quarter. The contraction was the result of contractions in its refining margins in two of its four operating regions.

The West Coast region saw the biggest fall of 22% YoY to $9.9 per barrel in the second quarter. The area accounted for 15% of Phillips 66’s oil throughput in the quarter. The Gulf Coast, which refined 37% of its throughput (the most compared to other areas), saw a 17% YoY contraction in its margin to $8.2 per barrel in the quarter.

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However, the Atlantic Basin/Europe, which processed 25% of Phillips 66’s throughput, saw a 4% YoY expansion in its refining margin to $10.9 per barrel. Also, the margin in the company’s Central Corridor region expanded 2% YoY to $17.8 per barrel in the quarter. The region accounted for 23% of Phillips 66’s total throughput.

Phillips 66’s peer Valero Energy’s (VLO) gross refining margin also contracted by $1.6 per barrel YoY to $9.6 per barrel in the second quarter. The fall was due to a decline in oil spreads. The Brent-Maya, Brent–Alaskan North Sweet, and Brent–Argus Sour Crude Index spreads fell YoY in the quarter.

Peers’ performances

Valero Energy’s second-quarter EPS fell 30% YoY.

Analysts expect Marathon Petroleum’s and Delek US Holdings’ EPS to fall 40% and 38%, respectively. They expect PBF Energy’s EPS to fall 36% YoY in the quarter. However, analysts expect Holly Frontier’s EPS to rise 13% YoY in the quarter.

To learn more, read Will MPC Outperform Peers in Q2?

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