10-QPeriod: Q2 FY2016

Phillips 66 Quarterly Report for Q2 Ended Jun 30, 2016

Filed July 29, 2016For Securities:PSX

Summary

Phillips 66 reported net income attributable to the company of $496 million for the second quarter of 2016, a significant decrease from $1,012 million in the same period of 2015. This decline was primarily driven by lower realized margins in the Refining segment due to decreased crack spreads and reduced olefins and polyolefins margins in the Chemicals segment. The Marketing and Specialties segment also saw a decrease, partly due to the absence of a deferred gain recognized in the prior year. Despite the lower net income, the company generated $1,413 million in cash from operating activities for the first six months of 2016, though this was down from $2,779 million in the prior year. Shareholder returns remained a focus, with the company continuing to pay dividends and repurchase shares. The company's balance sheet showed total assets of $50.4 billion and total liabilities of $26.3 billion as of June 30, 2016. Cash and cash equivalents stood at $2.2 billion, down from $3.1 billion at the end of 2015. The company reported a debt-to-capital ratio of 27%, which is within its target range. Phillips 66 Partners LP continued to be a key financing vehicle, raising $669 million in public offerings during the period. The company maintained significant liquidity with approximately $5.4 billion in available capacity under its credit facilities and no outstanding commercial paper.

Financial Highlights

44 data points
Beta

Revenue

$21.85B

Net Income

$494.00M

2.3% Net Margin

EPS (Diluted)

$0.93

Total Assets

$50.36B

Cash & Equivalents

$2.23B

Free Cash Flow

$1.16B

Financial Statements
Beta
Revenue$21.85B
SG&A Expenses$421.00M
Operating Income$881.00M
Net Income$494.00M
EPS (Basic)$0.94
EPS (Diluted)$0.93
Shares Outstanding (Basic)528.25M
Shares Outstanding (Diluted)531.06M

Key Highlights

  • 1Net income attributable to Phillips 66 decreased significantly to $496 million in Q2 2016 from $1,012 million in Q2 2015, largely due to lower refining margins and chemical margins.
  • 2Total revenues decreased by 23% to $21,849 million in Q2 2016 compared to $28,512 million in Q2 2015, primarily due to lower commodity prices.
  • 3Cash flow from operating activities for the first six months of 2016 was $1,413 million, a decrease from $2,779 million in the same period of 2015, reflecting lower realized margins and equity affiliate distributions.
  • 4Phillips 66 Partners LP raised $669 million in public offerings, supporting the company's liquidity and investment activities.
  • 5The company repurchased $633 million of its common stock and paid $625 million in dividends during the first six months of 2016, demonstrating a commitment to shareholder returns.
  • 6The Refining segment experienced lower margins, with the worldwide refining margin at $7.13 per barrel in Q2 2016, down from $11.70 per barrel in Q2 2015.
  • 7The company maintained a strong liquidity position, with $2.2 billion in cash and cash equivalents and $5.4 billion in available credit facilities as of June 30, 2016.

Frequently Asked Questions

The primary drivers for the decrease in net income were lower realized margins in the Refining segment due to decreased market crack spreads, and reduced olefins and polyolefins margins in the Chemicals segment. Additionally, the Marketing and Specialties segment saw lower earnings due to the absence of a deferred gain recognized in the prior year's comparable period.

Phillips 66 generated $1,413 million in cash from operating activities in the first six months of 2016. They also utilized Phillips 66 Partners LP to raise $669 million. The company funded capital expenditures of $1,370 million, paid dividends of $625 million, and repurchased $633 million of its stock. They ended the period with $2.2 billion in cash and over $5.4 billion available under credit facilities, indicating a strong liquidity position.

Management noted that commodity prices increased in the second quarter of 2016 compared to the first quarter but were still lower than the second quarter of 2015. They also observed a narrowing of the WTI-Brent discount. The company acknowledges that its operating cash flows are highly dependent on volatile refining, marketing, NGL, and chemicals margins, and that fluctuations in these prices can significantly impact future performance.

Phillips 66 is involved in ongoing legal proceedings and environmental remediation efforts. While the company believes it is remote that future costs related to known contingent liabilities will materially adversely impact its financial statements, these matters, particularly environmental remediation costs and legal settlements, are subject to change and can be complex. They are currently addressing matters at 35 Superfund sites and are subject to consent decrees related to Clean Air Act violations at their U.S. refineries.