01—Abstract
Summary
Summary of the 8-K filed April 26, 2024. Cited figures are marked; the original filing is the authoritative source.
Phillips 66 reported first-quarter 2024 earnings of $748 milliona, or $1.73 per diluted share, down sharply from $1.26 billion ($2.86 per share) in the first quarter of 2023 and $1.26 billion in the fourth quarter of 2023 (fourth-quarter GAAP earnings were $1,260 million).
Excluding $74 millionb of after-tax special items, adjusted earnings were $822 million, or $1.90 per share. The decline was driven primarily by Refining, where adjusted pre-tax income fell to $228 million from $797 million in the fourth quarter and $1.6 billion a year earlier, reflecting planned maintenance, weaker realized margins, inventory hedging losses, and the Rodeo renewable fuels conversion. Midstream and Chemicals were more resilient, with Chemicals improving to $205 million on stronger polyethylene margins.
Cash flow was weak in the quarter: operating cash flow was negative $236 millionc, but excluding $1.4 billion of working capital build (mainly inventory), operating cash flow was $1.2 billion. Management funded $1.2 billion of share repurchases and $448 million of dividends, and net debt issuances of $802 million helped fund the shortfall. The debt-to-capital ratio rose to 40% and net debt-to-capital to 38%, while cash fell to $1.6 billion.
Shareholder distributions since July 2022 total $9.9 billiond, and management remains on pace for its $13 billion to $15 billion target by year-end 2024. Strategically, the company reaffirmed its goal of $14 billion mid-cycle adjusted EBITDA by 2025 and returning over 50% of operating cash flow to shareholders. Progress includes $1.24 billion of run-rate business transformation savings, startup of the Rodeo Renewable Energy Complex (30,000 barrels per day now, targeting about 50,000 barrels per day by the end of the second quarter), and a process to divest retail marketing assets in Germany and Austria.
The company also announced a 10% increase in its quarterly dividend to $1.15 per share. Investors should watch whether refining margins recover into the summer driving season and whether the company can sustain distributions while funding them partly with debt.
02—Key points
Key Highlights
- GAAP earnings of $748 million ($1.73/share) and adjusted earnings of $822 million ($1.90/share), versus $1.26 billion ($2.86/share) in 1Q 2023 on a reported basis
- Refining adjusted pre-tax income collapsed to $228 million from $797 million in 4Q 2023 and $1.6 billion in 1Q 2023, driven by lower realized margins, inventory hedging losses, and maintenance
- Chemicals (CPChem) pre-tax income rose to $205 million from $106 million on higher polyethylene margins and lower feedstock costs
- Operating cash flow was negative $236 million; excluding $1.4 billion of working capital build, it was $1.2 billion
- Returned $1.6 billion to shareholders in the quarter ($1.2 billion buybacks, $448 million dividends); debt-to-capital rose to 40%
- Quarterly dividend increased 10% to $1.15 per share; $9.9 billion returned since July 2022 against a $13–15 billion target by year-end 2024
- Rodeo Renewable Energy Complex began operations at 30,000 barrels per day, targeting about 50,000 barrels per day by end of Q2 2024; Germany and Austria retail divestiture launched
03—Questions
Frequently Asked Questions
Why did Phillips 66's earnings fall so sharply in the first quarter of 2024?
The decline was concentrated in Refining, where adjusted pre-tax income fell to $228 million from $797 million in the fourth quarter. Management cited planned maintenance that limited higher-value product output, the Rodeo renewable fuels conversion, lower realized margins from less favorable commercial results, inventory hedging losses as commodity prices rose, and weaker Gulf Coast clean product realizations.
Is the company still able to fund its shareholder returns?
In the quarter, operating cash flow excluding working capital was $1.2 billion, but a $1.4 billion working capital build (mainly inventory) pushed reported operating cash flow to negative $236 million. Phillips 66 funded $1.2 billion of buybacks and $448 million of dividends partly through $802 million of net debt issuance, and its cash balance fell to $1.6 billion. Investors should monitor whether working capital normalizes so distributions are covered by operating cash flow.
What is the status of the company's strategic priorities?
Phillips 66 has achieved $1.24 billion of run-rate business transformation cost and sustaining capital savings, targeting $1.4 billion by year-end 2024. It is pursuing a $14 billion mid-cycle adjusted EBITDA target by 2025, has captured $1.25 billion toward that from the DCP Midstream integration, and is divesting non-core retail assets in Germany and Austria. The Rodeo Renewable Energy Complex started up, and CPChem's Gulf Coast and Ras Laffan projects are expected to start in 2026.
Did the company change its dividend?
Yes. Phillips 66 recently announced a 10% increase in its quarterly dividend to $1.15 per common share. The increase reflects the company's commitment to returning over 50% of operating cash flow to shareholders, although the first-quarter cash shortfall means the sustainability of higher payouts depends on a recovery in refining margins and working capital.
What are the main risks to the outlook?
Key risks include volatility in crude, refined product, and NGL prices and refining margins; changes in renewable fuel standards and low-carbon fuel policies that affect the Rodeo conversion economics; execution risk on the DCP synergy and business transformation savings; project delays at capital projects; and the timing and terms of the Germany and Austria divestitures. The company also disclosed a $59 million asset impairment in Midstream and a $104 million impairment in Refining in the quarter.
04—Continue