10-QPeriod: Q1 FY2020

Phillips 66 Quarterly Report for Q1 Ended Mar 31, 2020

Filed May 1, 2020For Securities:PSX

Summary

Phillips 66 (PSX) reported a significant net loss of $2.496 billion for the first quarter of 2020, a substantial decline from the $204 million net income in the prior year. This downturn was primarily driven by the unprecedented market disruptions caused by the COVID-19 pandemic and the oil price war between Russia and OPEC, which led to a severe drop in demand and prices for crude oil and refined products. The company also recorded substantial impairment charges, including an $1.845 billion goodwill impairment in its Refining segment and a $1.161 billion impairment on its investment in DCP Midstream. Despite the challenging environment, Phillips 66 took proactive steps to bolster liquidity, including securing a $2 billion term loan facility, issuing $1 billion in senior notes, temporarily suspending share repurchases, and reducing capital spending plans. The company ended the quarter with $1.2 billion in cash and cash equivalents and approximately $5.7 billion in available committed capacity under its revolving credit facilities, indicating a focus on financial resilience.

Financial Highlights

46 data points
Beta

Revenue

$20.88B

11.7% Gross Margin

Net Income

-$2.50B

-12.0% Net Margin

EPS (Diluted)

$-5.66

Total Assets

$53.46B

Cash & Equivalents

$1.22B

Free Cash Flow

$217.00M

Financial Statements
Beta
Revenue$20.88B
Cost of Revenue$18.44B
Gross Profit$2.44B
SG&A Expenses$319.00M
Operating Income-$2.50B
Net Income-$2.50B
EPS (Basic)$-5.66
EPS (Diluted)$-5.66
Shares Outstanding (Basic)441.35M
Shares Outstanding (Diluted)441.35M

Key Highlights

  • 1Reported a net loss of $2.496 billion for Q1 2020, a significant decrease from a net income of $204 million in Q1 2019.
  • 2Recorded impairment charges totaling $3.006 billion, including $1.845 billion for goodwill in the Refining segment and $1.161 billion for its investment in DCP Midstream.
  • 3Revenues decreased to $20.878 billion from $23.658 billion in the prior year's comparable quarter, reflecting the adverse impact of market conditions.
  • 4Took significant steps to enhance liquidity, including drawing $1 billion on a new $2 billion term loan facility and issuing $1 billion in senior unsecured notes.
  • 5Reduced consolidated capital spending plans for 2020 by $700 million, aiming to preserve cash.
  • 6Maintained $1.2 billion in cash and cash equivalents and $5.7 billion in available committed credit capacity at the end of the quarter.
  • 7Experienced a significant decline in its Midstream segment due to a $1.161 billion impairment of its DCP Midstream investment, though other Midstream operations showed improvement.

Frequently Asked Questions

The primary drivers were the severe market disruptions caused by the COVID-19 pandemic, leading to reduced demand and prices for crude oil and refined products, and the oil production dispute between Russia and OPEC. These factors, combined with substantial impairment charges of $1.845 billion for goodwill and $1.161 billion for its DCP Midstream investment, resulted in a net loss of $2.496 billion.

Phillips 66 has taken several steps to strengthen its financial position. These include securing a $2 billion term loan facility, of which $1 billion was drawn, and issuing $1 billion in senior unsecured notes. The company also temporarily suspended its share repurchase programs and reduced its 2020 consolidated capital spending by $700 million and operating costs by $500 million.

The total impairment charges amounted to $3.006 billion. An $1.845 billion goodwill impairment was recorded in the Refining segment due to the decline in market capitalization. An additional $1.161 billion impairment was recognized on the investment in DCP Midstream, significantly impacting the Midstream segment's profitability for the quarter. These impairments contributed substantially to the overall net loss.

The company acknowledges that the near-term outlook remains highly uncertain due to the ongoing COVID-19 pandemic and volatile commodity prices. Management anticipates that refining, marketing, and chemical margins, along with transportation volumes, will continue to be challenged. The company emphasizes its focus on enhancing liquidity and managing costs to navigate this environment.