10-QPeriod: Q1 FY2016

Phillips 66 Quarterly Report for Q1 Ended Mar 31, 2016

Filed April 29, 2016For Securities:PSX

Summary

Phillips 66's (PSX) first quarter 2016 results show a significant year-over-year decline in net income, primarily driven by lower refining margins due to decreased market crack spreads and a substantial drop in earnings from its Chemicals segment. The company reported net income attributable to Phillips 66 of $385 million for the three months ended March 31, 2016, compared to $987 million in the same period of 2015. This performance was also impacted by the absence of a deferred gain recognized in the prior year's first quarter related to the sale of the Immingham Combined Heat and Power Plant. Despite the decline in profitability, Phillips 66 generated $258 million in operating cash flow, though this was substantially lower than the $1,352 million generated in Q1 2015. The company continued to invest in its future, with capital expenditures and investments totaling $750 million. Phillips 66 also demonstrated a commitment to returning capital to shareholders through $296 million in dividend payments and $391 million in share repurchases during the quarter. The company ended the period with $1.7 billion in cash and cash equivalents and maintained a strong liquidity position with approximately $5.4 billion in available capacity under its credit facilities.

Financial Highlights

43 data points
Beta

Revenue

$17.41B

Net Income

$384.00M

2.2% Net Margin

EPS (Diluted)

$0.72

Total Assets

$48.25B

Cash & Equivalents

$1.72B

Free Cash Flow

$258.00M

Financial Statements
Beta
Revenue$17.41B
SG&A Expenses$386.00M
Operating Income$385.00M
Net Income$384.00M
EPS (Basic)$0.72
EPS (Diluted)$0.72
Shares Outstanding (Basic)531.74M
Shares Outstanding (Diluted)534.71M

Key Highlights

  • 1Net income attributable to Phillips 66 significantly decreased by 61% to $385 million in Q1 2016 compared to $987 million in Q1 2015, primarily due to lower refining margins and Chemicals segment performance.
  • 2Operating cash flow declined substantially to $258 million in Q1 2016 from $1,352 million in Q1 2015, largely due to inventory timing and lower realized refining margins.
  • 3Capital expenditures and investments remained robust at $750 million in Q1 2016, signaling continued investment in the company's assets and growth projects.
  • 4The company returned capital to shareholders through $296 million in dividend payments and $391 million in share repurchases during Q1 2016.
  • 5Total debt remained stable at approximately $8.8 billion, with the debt-to-capital ratio holding steady at 27%.
  • 6Phillips 66 Partners LP contributed $236 million in consideration for the acquisition of a 25% interest in Phillips 66 Sweeny Frac LLC, including the assumption of a note payable and issuance of units.
  • 7The company has identified 35 unresolved sites with potential environmental liability under CERCLA and comparable state laws, with an environmental accrual of $488 million.

Frequently Asked Questions

The primary drivers for the significant decrease in net income were lower realized refining margins, which were impacted by decreased market crack spreads, and a decline in olefins and polyolefins margins in the Chemicals segment. Additionally, the absence of a deferred gain recognized in the first quarter of 2015 related to the sale of the Immingham Combined Heat and Power Plant also contributed to the year-over-year decline.

Phillips 66 generated $258 million in cash from operations, though this was substantially lower than the previous year. The company used this cash, along with its existing resources, to fund $750 million in capital expenditures and investments. It also returned capital to shareholders via $296 million in dividends and $391 million in share repurchases. The company maintained a strong liquidity position with $1.7 billion in cash and cash equivalents and $5.4 billion in available credit facilities.

Phillips 66 has an environmental accrual of $488 million as of March 31, 2016. While the company faces potential liabilities at 35 unresolved sites, based on currently available information, it believes it is remote that future costs related to known contingent liability exposures will materially adversely impact its consolidated financial statements. However, estimates for environmental remediation are subject to change due to various uncertainties, including cleanup costs and determination of liability among responsible parties.

The low commodity price environment had varied impacts. In Midstream, earnings are linked to NGL, natural gas, and crude oil prices; NGL prices weakened initially but recovered. The Chemicals segment's margins compressed due to lower crude oil prices impacting the ethylene to polyethylene chain, although North American light NGL-based crackers benefited from lower feedstock costs. Refining margins, or crack spreads, decreased due to growing product inventories and mild weather. Marketing and Specialties saw improved domestic marketing fuel margins due to higher product demand, but international margins were lower.