10-QPeriod: Q2 FY2020

Phillips 66 Quarterly Report for Q2 Ended Jun 30, 2020

Filed July 31, 2020For Securities:PSX

Summary

Phillips 66 reported a net loss of $141 million for the second quarter of 2020, a significant decrease from the $1.424 billion net income reported in the same period of 2019. This decline was primarily driven by the adverse economic impacts of the COVID-19 pandemic, which led to reduced demand for refined products, lower refining margins, and decreased refinery throughput. Significant impairments, including a $1.845 billion goodwill impairment in the Refining segment and a $1.161 billion impairment on the investment in DCP Midstream, heavily impacted the six-month results, leading to a net loss of $2.637 billion. Despite the challenging environment, the company focused on enhancing liquidity by securing a $2 billion term loan facility, issuing $2 billion in senior unsecured notes, and reducing capital spending plans. Phillips 66 ended the quarter with $1.9 billion in cash and cash equivalents and maintained access to substantial committed credit facilities. Management expressed uncertainty regarding the duration and depth of the economic impact of COVID-19 but believes its current liquidity position is sufficient to meet near- and long-term funding requirements.

Financial Highlights

46 data points
Beta

Revenue

$10.91B

12.0% Gross Margin

Net Income

-$141.00M

-1.3% Net Margin

EPS (Diluted)

$-0.33

Total Assets

$54.52B

Cash & Equivalents

$1.89B

Free Cash Flow

$764.00M

Financial Statements
Beta
Revenue$10.91B
Cost of Revenue$9.61B
Gross Profit$1.30B
SG&A Expenses$409.00M
Operating Income-$2.64B
Net Income-$141.00M
EPS (Basic)$-0.33
EPS (Diluted)$-0.33
Shares Outstanding (Basic)438.76M
Shares Outstanding (Diluted)438.76M

Key Highlights

  • 1Reported a net loss of $141 million for Q2 2020, a significant decline from $1.424 billion net income in Q2 2019, largely due to the COVID-19 pandemic's impact on demand and margins.
  • 2Recognized substantial impairments totaling $3.006 billion in the first six months of 2020, including a $1.845 billion goodwill impairment in Refining and a $1.161 billion impairment of the DCP Midstream investment.
  • 3Secured $2 billion in new debt financing (a term loan and senior unsecured notes) and reduced 2020 capital spending by $700 million to preserve liquidity.
  • 4Total assets decreased from $58.72 billion at December 31, 2019, to $54.52 billion at June 30, 2020, reflecting the challenging economic conditions.
  • 5Midstream segment showed resilience with $324 million in pre-tax income for Q2 2020, though six-month results were impacted by the DCP Midstream impairment.
  • 6Refining segment experienced a significant pre-tax loss of $878 million in Q2 2020 due to sharply lower realized refining margins and reduced throughput.
  • 7Company suspended share repurchase programs in March 2020 to conserve cash and ended the quarter with $1.9 billion in cash and cash equivalents.

Frequently Asked Questions

The primary driver was the severe negative impact of the COVID-19 pandemic, which significantly reduced demand for refined petroleum products like gasoline and jet fuel. This led to lower commodity prices, decreased refining margins, and reduced refinery operating rates and volumes across the company's operations.

Phillips 66 recorded a $1.845 billion goodwill impairment in its Refining segment and an $1.161 billion impairment on its investment in DCP Midstream. These impairments were primarily due to the significant decline in market capitalization and fair value of assets resulting from the economic disruption caused by the COVID-19 pandemic and the associated volatility in commodity and equity markets.

The company took several steps to enhance liquidity. This included securing a $2 billion 364-day delayed draw term loan facility, issuing $2 billion of senior unsecured notes, reducing consolidated capital spending by $700 million for 2020, and temporarily suspending its share repurchase programs. The company also focused on reducing operating and administrative costs.

The Refining segment reported a significant pre-tax loss of $878 million due to sharply lower refining margins and reduced throughput. The Midstream segment remained profitable with $324 million in pre-tax income, benefiting from fee-based operations, although its six-month results were impacted by the DCP Midstream impairment. The Chemicals segment saw a decrease in pre-tax income, largely due to lower margins at CPChem. The Marketing and Specialties segment reported a decrease in pre-tax income, primarily due to lower sales volumes and demand.