Two engineers man and woman using laptop to work at power plant on night shift.gettyDon’t worry—we haven’t missed out on the bargains from the August 5 “flash crash.” We’ve still got a sweet setup for surging dividends in a sector most people completely misunderstand.Misunderstood, unloved and soaring dividends? We’re interested!I’m talking about refinery stocks. We’re going to zero in on two of my favorites today: Phillips 66 (PSX) and Valero Energy Corp. (VLO). As you’ll see below, I like one more than th ...

Core Viewpoint - Phillips 66 is committed to rewarding shareholders through consistent dividend increases, making it an attractive option for income-focused investors [1][2]. Group 1: Dividend Growth - The company has increased its dividend at a compound annual growth rate of 12% from 2013 to 2023 [1]. - Phillips 66 declared a quarterly dividend of $1.05 per share in February 2024, which was subsequently raised to $1.15 per share for dividends paid in June [2]. - The total expected dividends for the first three quarters of 2024 amount to $3.35, with a target of $4.50 per share for the entire year [2]. Group 2: Cash Flow and Payout - In 2023, Phillips 66 generated significant operational cash flow of $7 billion [3]. - The management aims to return over 50% of cash from operations to shareholders, supported by a low payout ratio averaging 27% over the past three years [3]. - The company is projected to return approximately $1.9 billion to shareholders in 2024 through dividends [2].

Core Viewpoint - Phillips 66 reported better-than-expected second-quarter 2024 results, beating both earnings and revenue estimates, but the stock price has declined by 6.2% due to broader market concerns and high oil prices impacting refining operations [1][4]. Refining Business - Phillips 66 operates 13 refineries with a total capacity of 2.2 million barrels per day, relying on purchased feedstocks, which exposes the company to cost volatility [2]. - The refining segment is facing challenges due to high oil prices affecting profitability, leading to a focus on diversifying into midstream, renewables, and chemicals [2]. Midstream Business - Significant investments have been made in the midstream sector, including new pipelines and storage facilities, aimed at diversifying earnings and reducing reliance on refining [3]. - The midstream operations involve transportation, storage, and processing of crude oil and natural gas, aligning with industry trends towards stable, fee-based revenue [3]. Better-Than-Expected Q2 Results - Adjusted earnings for Q2 2024 were $2.31 per share, exceeding the Zacks Consensus Estimate of $2.12, but lower than $3.87 from the previous year [4]. - Total revenues reached $38.9 billion, surpassing the estimate of $32 billion and improving from $35.7 billion year-over-year [4]. Segmental Results - **Midstream**: Adjusted pre-tax earnings were $753 million, up from $642 million year-over-year, driven by higher NGL volumes and margins [5]. - **Refining**: Adjusted pre-tax earnings fell to $302 million from $1.19 billion in the previous year, missing projections due to lower market crack spreads [6]. - Realized refining margins declined significantly across various regions, with global margins dropping to $10.01 per barrel from $15.55 year-over-year [7].

PHILLIPS 66 SECOND-QUARTER CONFERENCE CALL July 30, 2024 Cautionary Statement This presentation contains forward-looking statements within the meaning of the federal securities laws. Words such as "anticipated," "estimated," "expected," "planned," "scheduled," "targeted," "believe," "continue," "intend," "will," "would," "objective," "goal," "project," "efforts," "strategies" and similar expressions that convey the prospective nature of events or outcomes generally indicate forward-looking statements. Howev ...

Core Thesis - Phillips 66 (PSX) has seen a significant shift in its earnings structure, with midstream assets now contributing over 45% of earnings, while the refining segment has dropped to under 20% of the bottom line, raising questions about the company's long-term outlook [2][5] Q2 Earnings Results - In Q2 2024, PSX reported an EPS of $2.31, beating market expectations by $0.33 and exceeding Q1 performance by $0.41, but still down from $3.87 a year ago [3] - Weak refinery margins, which have fallen approximately 33% year-over-year and 50% since Q1 2023, were the main driver for the decline in earnings [3] - The refining segment's earnings decreased from $1.7 billion in Q3 2023 to $302 million in the latest quarter, while midstream, chemicals, and marketing segments increased pretax income by 22% over Q1 [3][4] Midstream Business Developments - PSX announced the acquisition of Pinnacle Midstream for $550 million, expected to yield a 5.5x EBITDA multiple, indicating a strategic move to enhance its midstream capabilities [7] - The divestment of a 25% stake in the Rockies Express Pipeline for $1.275 billion at a multiple of 10.2x EBITDA allowed PSX to retire associated debt and unlock $135 million in cash [10] Future Refining Outlook - The refining sector faces challenges with new refineries in the Middle East and Africa expected to increase capacity, potentially putting pressure on crack spreads in the near term [11] - Despite current struggles, PSX's management remains optimistic about long-term refining fundamentals, citing limited capacity growth beyond 2025 and increasing global demand [11] Operating Costs and Efficiency - PSX has successfully reduced operating costs by $1.53 per barrel since 2022, achieving a quarterly cost of $6.43 per barrel with 98% utilization across its portfolio [12] - However, PSX's margins remain lower compared to competitors, indicating room for improvement in cost structure [12] Valuation and Shareholder Returns - PSX generated $4.13 billion in EBITDA in the first half of the year, yielding an annualized EV to EBITDA multiple of 9.6x, which is not expensive but represents a premium compared to peers [13] - The company has returned $11.2 billion to shareholders through dividends and share repurchases, with expectations to reach a total of $13-$15 billion by the end of 2024 [14] Key Takeaways - Weak refining crack spreads persist due to high US utilization and new Middle Eastern refinery capacities [16] - PSX's diverse business segments have created a reliable earnings floor, allowing for substantial cash generation despite market pressures [16] - The company's current valuation and near-term challenges lead to a HOLD rating, but long-term opportunities remain due to cash generation capabilities and positive refinery market forecasts [16]

Financial Performance - Total revenues and other income for Q2 2024 were $38.911 billion, compared to $35.740 billion in Q2 2023, reflecting a growth of 8.9%[10] - Net income for Q2 2024 was $1.020 billion, a decrease from $1.734 billion in Q2 2023, representing a decline of 41.2%[13] - Comprehensive income attributable to Phillips 66 for Q2 2024 was $1.018 billion, down from $1.798 billion in Q2 2023, a decrease of 43.4%[13] - Net income attributable to Phillips 66 common stockholders for the three months ended June 30, 2024, is $1.015 billion, with net income available to common stockholders at $1.012 billion[54] - Earnings per share (EPS) for the three months ended June 30, 2024, is $2.39 (basic) and $2.38 (diluted)[56] - Net income attributable to Phillips 66 was $1 billion in Q2 2024, compared to $1.7 billion in Q2 2023, primarily due to a decline in realized refining margins[144] - Sales and other operating revenues increased by 9% in Q2 2024, driven by higher crude oil prices and refined petroleum product sales volumes[147] - Net gain on dispositions increased by $249 million in Q2 2024 and $215 million in the six-month period of 2024, primarily due to a $238 million before-tax gain from the sale of a 25% ownership interest in REX[148] - Other income decreased by 41% in Q2 2024 due to lower interest income from reduced cash balances[148] - Taxes other than income taxes decreased by 72% in Q2 2024 and 44% in the six-month period of 2024, primarily due to renewable diesel blending tax credits[149] - Income tax expense decreased by 43% in Q2 2024 and 54% in the six-month period of 2024, driven by lower income before taxes[149] - Net income attributable to noncontrolling interests decreased by 86% in Q2 2024 and 88% in the six-month period of 2024, primarily due to Midstream segment impairment charges and the DCP LP Merger[150] - The company reported earnings of $1 billion and cash provided by operating activities of $2.1 billion in the second quarter of 2024[132] Cash Flow and Capital Expenditures - Cash and cash equivalents decreased to $2.444 billion as of June 30, 2024, from $3.323 billion at the end of 2023, a reduction of 26.5%[15] - Capital expenditures and investments in Q2 2024 amounted to $995 million, compared to $929 million in Q2 2023, an increase of 7.1%[16] - Repurchase of common stock in Q2 2024 totaled $2.004 billion, slightly lower than $2.109 billion in Q2 2023, a decrease of 5.0%[16] - Dividends paid on common stock in Q2 2024 were $933 million, compared to $960 million in Q2 2023, a decline of 2.8%[16] - Cash and cash equivalents decreased to $2.4 billion in the first six months of 2024, with $1.9 billion generated from operating activities and $685 million from asset dispositions[185] Balance Sheet and Debt - Total assets as of June 30, 2024, were $75.945 billion, up from $75.501 billion at the end of 2023, an increase of 0.6%[15] - Long-term debt as of June 30, 2024, was $17.180 billion, down from $17.877 billion at the end of 2023, a reduction of 3.9%[15] - Total debt increased to $19.96 billion as of June 30, 2024, with a debt-to-capital ratio of 40%[185] - Phillips 66 issued $1.5 billion in senior unsecured notes on February 28, 2024, including $600 million at 5.250% due 2031, $400 million at 5.300% due 2033, and $500 million at 5.650% due 2054[60] - Phillips 66 repaid $700 million of its $1.25 billion delayed draw term loan on March 4, 2024[62] - Phillips 66 entered into a $400 million uncommitted credit facility on June 25, 2024, with $400 million outstanding as of June 30, 2024[65] - Phillips 66 has a $5 billion revolving credit agreement with a scheduled maturity date of February 28, 2029, and no borrowings were outstanding as of June 30, 2024[66] - Phillips 66 has a $5 billion uncommitted commercial paper program, with $899 million issued as of June 30, 2024[67] - Phillips 66 issued $1.5 billion in senior unsecured notes in February 2024, including $600 million at 5.250%, $400 million at 5.300%, and $500 million at 5.650%[189] - The company entered into a $400 million uncommitted credit facility on June 25, 2024, with $400 million outstanding as of June 30, 2024[191] Acquisitions and Divestitures - Completed acquisition of DCP Midstream, LP, increasing the company's economic interest in DCP LP from 43.3% to 86.8% and in DCP Sand Hills and DCP Southern Hills from 62.2% to 91.2%[26] - Acquired a marketing business on the U.S. West Coast for $272 million to support renewable diesel placement, recording $146 million in amortizable intangible assets and $67 million in goodwill[28] - Entered into an agreement to acquire Pinnacle Midland Parent LLC for $566 million to expand natural gas operations in the Permian Basin[29] - Sold 25% ownership interest in Rockies Express Pipeline LLC for approximately $685 million, recognizing a before-tax gain of $238 million[51] - Entered into an agreement to sell ownership interests in certain gathering and processing assets in Louisiana and Alabama for approximately $170 million[52] - Phillips 66 sold its 25% ownership interest in REX for approximately $685 million on June 14, 2024[195] - The company agreed to sell certain gathering and processing assets in Louisiana and Alabama for approximately $170 million, expected to close in Q3 2024[196] Segment Performance - Consolidated sales and other operating revenues for the six months ended June 30, 2024, were $73.94 billion, with refined petroleum products and renewable fuels contributing $53.81 billion[30] - Geographic revenue breakdown for the six months ended June 30, 2024: United States $58.84 billion, United Kingdom $7.10 billion, Germany $2.67 billion, and other countries $5.33 billion[31] - Total sales for the Refining segment increased from $22,016 million in Q2 2023 to $23,099 million in Q2 2024, with intersegment eliminations reducing net sales to $9,200 million[120] - Renewable Fuels segment sales grew from $1,235 million in Q2 2023 to $1,501 million in Q2 2024, with intersegment eliminations resulting in net sales of $350 million[120] - Midstream segment results increased by $147 million in Q2 2024 but decreased by $15 million in the six-month period of 2024[154] - Refining segment results decreased by $873 million in Q2 2024 and $2,251 million in the six-month period of 2024, primarily due to lower realized margins[168] - Marketing and Specialties segment results decreased by $118 million in Q2 2024 and $115 million in the six-month period of 2024, driven by lower U.S. marketing fuel margins[174] - Renewable Fuels segment produced 31 thousand barrels daily in Q2 2024, up from 10 thousand barrels daily in the same period of 2023[177] - Renewable Fuels segment decreased by $123 million in Q2 2024 and $252 million in the six-month period of 2024, driven by higher feedstock costs and lower emissions credits, partially offset by increased renewable fuel sales and tax credits[178] Environmental and Regulatory - Total environmental accruals were $448 million at June 30, 2024, compared to $446 million at December 31, 2023[81] - The Rodeo Renewable Energy Complex (RREC) processes approximately 50,000 barrels per day of renewable feedstocks and is expected to produce sustainable aviation fuel in Q3 2024[133] - The composite 3:2:1 market crack spread decreased to an average of $18.96 per barrel in Q2 2024, from $28.65 per barrel in Q2 2023[139] Derivatives and Commodities - Commodity derivative assets and liabilities were $3,283 million and $3,387 million, respectively, at June 30, 2024[90] - Net gain (loss) from commodity derivative activity was $97 million for the three months ended June 30, 2024[92] - Open position for crude oil, refined petroleum products, NGL, and renewable feedstocks was (51) million barrels at June 30, 2024[93] - Open position for natural gas was (6) billion cubic feet at June 30, 2024[93] - More than 90% of derivative contract volumes are set to expire within the next 12 months[91] - Commodity derivative assets increased from $3,395 million in December 2023 to $3,474 million in June 2024, with exchange-cleared instruments rising from $3,129 million to $3,210 million[102][102] Pension and Benefits - Net periodic benefit cost for pension benefits in the U.S. increased from $25 million in Q2 2023 to $32 million in Q2 2024, driven by higher service and interest costs[106] - The company contributed $18 million to U.S. pension and postretirement benefit plans in the first half of 2024, with an additional $17 million expected for the remainder of the year[106] - Accumulated other comprehensive loss increased from $282 million in December 2023 to $309 million in June 2024, primarily due to foreign currency translation losses[110] Other Financial Metrics - Contract-related assets increased to $563 million at June 30, 2024, from $537 million at December 31, 2023, while contract liabilities decreased to $162 million from $187 million[32] - Remaining performance obligations for minimum volume commitment contracts amounted to $394 million, expected to be recognized through 2031[33] - Inventories valued on the LIFO basis totaled $5.93 billion at June 30, 2024, with an estimated excess of current replacement cost over LIFO cost of approximately $5.9 billion[39] - Gross investment in PP&E for Midstream segment is $26.277 billion with accumulated depreciation and amortization of $5.085 billion, resulting in a net value of $21.192 billion[53] - Total impairments for the three months ended June 30, 2024, are $225 million, primarily related to Midstream segment assets in Texas[57] - Impairments increased by $221 million in Q2 2024 and $378 million in the six-month period of 2024, driven by Midstream segment charges related to Texas assets and Refining segment charges in California[148] - Net interest expense increased by $18 million in Q2 2024 and $80 million in the six-month period of 2024, primarily due to lower interest income and higher average debt principal balances[181] - Corporate overhead and other costs decreased by $14 million in Q2 2024 and $31 million in the six-month period of 2024, mainly due to reduced consulting fees[181] - The fair value of the investment in NOVONIX declined by $7 million in Q2 2024 and $2 million in the six-month period of 2024[182] - Fixed-rate debt, excluding finance leases and software obligations, increased from $16,718 million in December 2023 to $17,497 million in June 2024, with a fair value adjustment from $17,126 million to $18,415 million[102][102] - Performance obligations secured by letters of credit and bank guarantees amounted to $1.1 billion at June 30, 2024[83] - Trade receivables primarily have payment terms of 30 days or less[95] - Derivative instruments are classified as Level 1, 2, or 3 based on the observability of valuation inputs[99] - Investment in NOVONIX Limited is categorized as Level 1 in the fair value hierarchy[101] - Phillips 66 has residual value guarantees totaling $514 million for its headquarters facility lease and $172 million for railcar, airplane, and truck leases[71] - The establishment of a Renewable Fuels operating segment in April 2024 reclassified renewable fuels activities previously reported in Refining, M&S, and Midstream segments[116] - The effective income tax rate for the three and six months ended June 30, 2024, was 22%, compared to 23% and 22% for the corresponding periods in 2023[122] - DCP Midstream Class A Segment's net properties, plants, and equipment were $8,967 million as of June 30, 2024, compared to $9,319 million as of December 31, 2023[123] - The DCP LP Merger increased the company's economic interest in DCP LP from 43.3% to 86.8%, with a cash consideration of $3,796 million paid to common unitholders[124] - DCP LP made cash distributions of $12 million and $24 million during the three and six months ended June 30, 2024, respectively, compared to $51 million and $102 million in the same periods in 2023[126] - Phillips 66 Partners' 25% share of the maximum potential equity contributions under the CECU is approximately $215 million[204] - Potential annual interest payments on the notes could amount to approximately $10 million if operations cease[204] - The CECU may require co-venturers to make proportionate equity contributions if there is an unfavorable final judgment in ongoing litigation[204]

Phillips 66 (NYSE:PSX) Q2 2024 Earnings Conference Call July 30, 2024 12:00 PM ET Company Participants Jeff Dietert - VP, IR Mark Lashier - Chairman and CEO Kevin Mitchell - CFO Rich Harbison - Refining Brian Mandell - Marketing and Commercial Don Baldridge - Midstream and Chemicals Conference Call Participants Roger Read - Wells Fargo Neil Mehta - Goldman Sachs John Royall - JPMorgan Ryan Todd - Piper Sandler Matthew Blair - Tudor, Pickering, Holt Jason Gabelman - TD Cowen Doug Leggate - Wolfe Research Pau ...

Key TakeawaysPhillips 66 beat profit and sales estimates in the second quarter as midstream income jumped 23.7% year-over-year.The energy company pointed to higher natural gas liquids volume and margin, along with cost cuts, for the midstream gains.Phillips' crude utilization rate was the highest in five years. Shares of Phillips 66 (PSX) jumped in intraday trading Tuesday after the energy company posted better-than-anticipated results on higher midstream profit. The company reported second-quarter earnings ...

Core Insights - Phillips 66 reported second-quarter 2024 adjusted earnings of $2.31 per share, exceeding the Zacks Consensus Estimate of $2.12, but lower than the previous year's $3.87 [1] - Total revenues for the quarter reached $38.9 billion, surpassing the Zacks Consensus Estimate of $32 billion and improving from $35.7 billion in the same quarter last year [1] Segmental Results - **Midstream**: Adjusted pre-tax earnings increased to $753 million from $642 million year-over-year, exceeding the estimate of $604.6 million, driven by higher NGL volumes and margins [2] - **Chemicals**: Adjusted pre-tax earnings rose to $222 million from $192 million in the prior-year quarter, surpassing the estimate of $155.5 million, mainly due to increased margins [3] - **Refining**: Adjusted pre-tax earnings fell to $302 million from $1.19 billion year-over-year, missing the projection of $744.1 million, primarily due to lower market crack spreads [4] - **Marketing & Specialties**: Pre-tax earnings decreased to $415 million from $533 million in the previous year, falling short of the estimate of $492.1 million [5] Costs & Expenses - Total costs and expenses increased to $37.6 billion from $33.5 billion in the year-ago period, exceeding the projected $30 billion [6] Financial Condition - The company generated $2.1 billion in net cash from operations, significantly higher than $955 million a year ago, with capital expenditures totaling $367 million and dividends paid out amounting to $485 million [7] - As of June 30, 2024, cash and cash equivalents stood at $2.4 billion, with total debt at $19.9 billion, resulting in a debt-to-capitalization ratio of 43.4% [7]

Financial Performance - Phillips 66 reported total revenues and other income of $36,436 million for Q1 2024, compared to $38,911 million in Q2 2023, reflecting a decrease of approximately 6.3%[1] - Net income attributable to Phillips 66 for Q1 2024 was $748 million, down from $1,015 million in Q2 2023, representing a decline of about 26.4%[4] - Adjusted EBITDA for Q1 2024 was $1,943 million, compared to $2,183 million in Q2 2023, indicating a decrease of approximately 11%[5] - Phillips 66's diluted earnings per share for Q1 2024 was $1.73, compared to $2.38 in Q2 2023, a decrease of about 27.3%[2] - The company reported a total cost and expenses of $35,472 million in Q1 2024, compared to $37,600 million in Q2 2023, a reduction of approximately 5.7%[1] - In Q1 2024, Phillips 66 reported a net income of $761 million, with a year-to-date (YTD) net income of $1,734 million, compared to $2,143 million in the same period of 2023[12] Segment Performance - The company’s refining segment generated $545 million in adjusted EBITDA for Q1 2024, down from $1,968 million in Q2 2023, a decline of about 72.3%[5] - Midstream segment revenues for Q1 2024 totaled $861 million, compared to $971 million in Q2 2023, reflecting a decrease of approximately 11.4%[5] - Total adjusted EBITDA for the Midstream segment in Q1 2024 was $861 million, up from $748 million in Q4 2023[18] - Income before income taxes for the Central Corridor was $213 million in Q1 2024, compared to $367 million in Q2 2023, reflecting a decrease of 42.1%[24] - The worldwide refining income before income taxes was $1.50 per barrel in Q1 2024, a decrease from $2.00 per barrel in Q4 2023[23] - The Gulf Coast refining income before income taxes was $2.53 per barrel in Q1 2024, down from $14.22 per barrel in Q4 2023[23] Costs and Expenses - The corporate and other segment incurred restructuring costs of $35 million in Q1 2024, compared to $94 million in Q2 2023[7] - Total operating and SG&A expenses for the company were $991 million in Q1 2024, a slight increase from $935 million in Q2 2023, representing a rise of 6%[25] - The refining controllable costs per barrel were $6.89 in Q1 2024, up from $6.18 in Q2 2023, indicating an increase of 11.5%[27] - Depreciation and amortization expenses totaled $208 million in Q1 2024, compared to $204 million in Q2 2023, a slight increase of 2%[29] Cash Flow and Investments - The total cash provided by operating activities in Q2 2024 was $2,097 million, while the YTD cash provided was $7,029 million, reflecting a significant increase from $6,965 million in 2023[12] - Capital expenditures and investments for Q1 2024 amounted to $628 million, with a total of $2,418 million for the year, compared to $2,418 million in 2023[13] - The net cash used in financing activities for Q2 2024 was $(1,543) million, reflecting significant debt repayment and stock repurchase activities[13] Market and Production Metrics - The worldwide crude oil charge input averaged 1,700 MB/D in Q1 2024, showing a decrease from 1,802 MB/D in Q2 2023, a decline of 5.7%[30] - Refined petroleum products production in the Atlantic Basin/Europe totaled 522 MB/D in Q1 2024, a decrease of 6.1% from 556 MB/D in Q2 2023[32] - Total gasoline production in the Gulf Coast reached 526 MB/D in Q1 2024, up 2.6% from 571 MB/D in Q2 2023[32] - Total refined petroleum products sales in the U.S. reached 1,926 MB/D in Q1 2024, a decrease of 8.9% from 2,114 MB/D in Q2 2023[41] Taxation - The effective tax rate for Q1 2024 was 21.1%, slightly lower than the 22.2% reported in Q2 2023[2] - Phillips 66's total income tax expense for Q2 2024 was $13 million, with a YTD total of $57 million, indicating a tax impact from pre-tax special items[10] - The effective tax rate for the year-to-date was reported at 23.6%, with an adjusted effective tax rate of 22.7%[67] Special Items and Adjustments - The total special items (pre-tax) for Phillips 66 in Q2 2024 were $(83) million, with a YTD total of $(110) million[10] - The company incurred impairments of $165 million in Q1 2024, contributing to a total of $390 million for the year[12] - Special item adjustments for the third quarter included business transformation restructuring costs of $35 million[52] - The company experienced a legal settlement expense of $59 million, which was classified as a special item affecting net income[65]