10-QPeriod: Q3 FY2013

Phillips 66 Quarterly Report for Q3 Ended Sep 30, 2013

Filed October 31, 2013For Securities:PSX

Summary

Phillips 66 reported net income attributable to the company of $535 million ($0.87 per diluted share) for the third quarter of 2013, a significant decrease from $1,599 million ($2.51 per diluted share) in the same period last year. This decline was primarily driven by lower refining margins due to decreased market crack spreads and tightened crude differentials, compounded by higher operating expenses related to refinery turnarounds and environmental costs. Despite the drop in profitability, the company generated strong operating cash flow of $5.1 billion for the nine months ended September 30, 2013, and ended the quarter with a robust cash position of $5.9 billion. Key strategic developments during the quarter included the successful initial public offering of Phillips 66 Partners LP, which raised $404 million in net proceeds and is expected to provide a platform for midstream growth. The company also continued its commitment to returning capital to shareholders through dividends and a significant share repurchase program, completing its initial $2 billion authorization and announcing a new $1 billion program. Management expects its current cash and credit facilities to be sufficient to meet its future funding requirements, including capital expenditures and debt obligations.

Financial Highlights

42 data points
Beta

Revenue

$44.15B

Net Income

$535.00M

1.2% Net Margin

EPS (Diluted)

$0.87

Total Assets

$50.98B

Cash & Equivalents

$5.94B

Free Cash Flow

$1.93B

Financial Statements
Beta
Revenue$44.15B
SG&A Expenses$349.00M
Operating Income$2.86B
Net Income$535.00M
EPS (Basic)$0.88
EPS (Diluted)$0.87
Shares Outstanding (Basic)608.93M
Shares Outstanding (Diluted)614.52M

Key Highlights

  • 1Net income for the third quarter of 2013 was $535 million, down from $1,599 million in the prior year's quarter, primarily due to lower refining margins.
  • 2Diluted earnings per share (EPS) for the third quarter were $0.87, a decrease from $2.51 in the third quarter of 2012.
  • 3The company generated $5.1 billion in cash from operating activities for the first nine months of 2013, a substantial increase from $2.9 billion in the same period of 2012.
  • 4Phillips 66 Partners LP completed its initial public offering in July 2013, raising $404 million in net proceeds and strengthening the company's midstream segment.
  • 5The company repurchased $674 million of its common stock in the third quarter of 2013, completing its initial $2 billion share repurchase program and announcing a new $1 billion program.
  • 6Total assets increased to $51 billion as of September 30, 2013, from $48 billion at the end of 2012, supported by cash generation and strategic asset sales.

Frequently Asked Questions

The primary driver for the decrease in net income was a significant reduction in refining margins. This was attributed to lower market crack spreads and tighter crude differentials, which negatively impacted profitability in the Refining segment. Additionally, higher operating expenses related to refinery turnarounds and environmental costs contributed to the decline.

Phillips 66 demonstrated strong liquidity management by generating $5.1 billion in operating cash flow for the nine months ending September 30, 2013, and ending the quarter with $5.9 billion in cash and cash equivalents. The company also amended and increased its revolving credit facility to $4.5 billion, ensuring ample access to funds. Furthermore, it is actively returning capital to shareholders through a robust share repurchase program and consistent dividend payments.

The initial public offering of Phillips 66 Partners LP in July 2013 is significant as it raised $404 million in net proceeds and established a publicly traded master limited partnership. This structure is designed to own, operate, develop, and acquire fee-based midstream assets. The IPO provides a dedicated growth platform for the midstream segment, potentially unlocking further value and allowing Phillips 66 to focus on its core downstream and chemicals businesses while retaining significant ownership and control.

The company continues to accrue liabilities for environmental remediation, which totaled $505 million as of September 30, 2013. While management believes that future costs related to known contingent liabilities are unlikely to have a material adverse impact, environmental remediation costs are subject to uncertainties regarding cleanup magnitude, timing, and proportional liability. There is also a new legal matter involving allegations of violating the Migratory Bird Treaty Act related to bird deaths in a refinery storage pond. While no material impact is expected, these are ongoing matters to monitor.