Yahoo Finance Phillips 66 (NYSE:PSX) Q1 2024 Earnings Call Transcript
Phillips 66 (NYSE:PSX) Q1 2024 Earnings Call Transcript April 26, 2024
Phillips 66 misses on earnings expectations. Reported EPS is $1.9 EPS, expectations were $2.05. Phillips 66 isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the First Quarter 2024 Philips 66 Earnings Conference Call. My name is Lydia, and I’ll be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Jeff Dietert, Vice President, Investor Relations. Jeff, you may begin.
Jeff Dietert: Welcome to Philips 66 first quarter earnings conference call. Participants on today’s call will include Mark Lashier, President and CEO; Kevin Mitchell, CFO; Tim Roberts, Midstream and Chemicals; Rich Harbison, Refining; and Brian Mandell, Marketing and Commercial. Today’s presentation materials can be found on the Investor Relations section of the Philips 66 website along with supplemental financial and operating information. Slide two contains our Safe Harbor statement. We will be making forward-looking statements during today’s call. Actual results may differ materially from today’s comments. Factors that could cause actual results to differ are included here, as well as in our SEC filings. With that, I’ll turn it over to Mark.
Mark Lashier: Thanks, Jeff. Welcome everyone to our first quarter earnings call. We continued to progress our strategic priorities and we returned significant cash to our shareholders. While our crude utilization rates were strong during the quarter, our results were affected by maintenance that limited our ability to make higher value products. We were also impacted by the renewable fuels conversion at Rodeo, as well as the effect of rising commodity prices on our inventory hedge positions. Currently, our assets are running near historical highs and we are ready to meet peak summer demand. Before we provide an update on our strategic priorities, we want to recognize our midstream, refining and chemicals businesses, which have all received honors for their exemplary safety performance in 2023.
Our midstream gathering and processing business received the top 2023 GPA Safety Award in the large operator division. In refining, the Rodeo and Sweeney facilities both received the AFPM Distinguished Safety Award, which is the highest annual safety award in the industry. This was Sweeney Refinery's third straight year to receive the honor. The Ponca City refinery earned the Elite Platinum Award and the Lake Charles refinery secured the Elite Gold Award. In chemicals, CP Chem received two AFPM safety awards. I'm very proud of our employees and the employees of CP Chem for their commitment to safety. I would like to congratulate them on a job well done. Today, beginning on slide four, we'll highlight the progress we've made on our strategic priorities.
Next, we'll discuss our first quarter financial results. Then we look forward to your questions. We previously announced plans to monetize assets that no longer meet our long-term objectives, and we set a target to generate over $3 billion in proceeds. The expected proceeds will support our strategic priorities, including returns to shareholders. This quarter, we launched a process to divest our retail marketing business in Germany and Austria and communicated the plans to employees. Completion of the dispositions is subject to satisfactory market conditions and customary approvals. We have distributed almost $10 billion through share repurchases and dividends since July of 2022. Over the remaining three quarters of 2024, we expect to achieve our $13 billion to $15 billion target.
Share repurchases will continue to be an important component of our capital allocation. We're committed to return over 50% of our operating cash flows to shareholders. Recently, we announced a 10% increase in our quarterly dividend, contributing to a 16% compound annual growth rate since 2012. The dividend increase reflects the confidence we have in our growing mid-cycle cash flow generation and our disciplined approach to capital allocation, including a secure, competitive, and growing dividend. In refining, we continue to run at crude utilization rates above the industry average for the fifth consecutive quarter. We remain focused on improving performance, increasing market capture, and reducing costs to enhance our earnings per barrel. We have achieved over $560 million or more than $0.80 per barrel in run rate cost reductions from business transformation.
We expect to achieve our full $1 per barrel run rate target by the end of the year. In Midstream, our NGO wellhead to market business is focused on capturing operating and commercial synergies of over $400 million by year-end 2024. Midstream's estimated 2024 mid-cycle adjusted EBITDA is $3.6 billion, providing stable cash generation that covers the company's top capital priorities, funding sustaining capital, and the dividend. During the first quarter, we achieved a major milestone with the startup of our Rodeo Renewable Energy Complex. Slide five summarizes our journey to transform the San Francisco Refinery into one of the world's largest renewable fuels facilities. The facility benefits as a superior location to secure renewable feedstocks and market renewable fuels.
The project leverages existing assets and is expected to generate strong returns. We began producing renewable diesel from our Unit 250 hydrotreater in April of 2021. We have gained valuable operational experience and market knowledge that positions us for success in our expanding renewable fuels business. Unit 250 continues to exceed expectations and has increased production to approximately 10,000 barrels per day. Our Rodeo Renewable Energy Complex is producing 30,000 barrels per day of renewable fuels. We're on track to increase production capability to full rates of approximately 50,000 barrels per day by the end of the second quarter. Once complete, we'll have the ability to produce renewable jet, a key component of sustainable aviation fuel.
We're proud of the team's strong project execution and appreciate their commitment to operating excellence in achieving this significant milestone. The Rodeo Renewable Energy Complex positions Phillips 66 as a world leader in renewable fuels. Slide six provides an update on business transformation progress. Our run rate savings were $1.24 billion at the end of the first quarter, comprised of $940 million of cost reductions and $300 million of sustaining capital efficiencies. Through the first quarter, we've achieved $750 million in annualized cost reductions. The majority of these cost reductions relate to refining operating and SG&A expenses, as well as benefits to equity earnings and gross margin. We're on track to realize $1 billion of cost reductions in 2024 to sustain higher cash generation.
Before I turn the call over to Kevin to review the financial results, I want to stress that the market fundamentals are good, our assets are running well, and we have a clear path to achieving our strategic priorities and growing cash flows.
Kevin Mitchell: Thank you, Mark. Slide seven summarizes our first quarter results. Adjusted earnings were $822 million, or $1.90 per share. Operating cash flow, excluding working capital was $1.2 billion. We received distributions from equity affiliates of $348 million. Capital spending for the quarter was $628 million, including $171 million for a midstream joint venture debt repayment. We distributed $1.6 billion to shareholders through $1.2 billion of share repurchases and $448 million of dividends. Net debt to capital ratio was 38%. Slide eight highlights the change in results by segment from the fourth quarter to the first quarter. During the period, adjusted earnings decreased $540 million, mostly due to lower results in refining, midstream, and marketing and specialties, partially offset by improved results in chemicals.
In midstream, first quarter adjusted pre-tax income of $613 million was down $141 million from the prior quarter, reflecting lower results in transportation and NGL. Transportation results were down mainly due to a decrease in throughput and efficiency revenues, partially offset by seasonally lower maintenance costs. The NGL business decreased primarily due to a decline in margins, as well as lower volumes reflecting impacts from winter storms. Chemicals adjusted pre-tax income increased $99 million to $205 million in the first quarter. This increase was mostly due to higher polyethylene margins driven by improved sales prices and the decline in feedstock costs, as well as lower turnaround costs. Global O&P utilization was 96%. Refining first quarter adjusted pretax income was $228 million, down $569 million from the fourth quarter.
The decrease was primarily due to lower realized margins. Our commercial results were less favorable than the previous quarter, in part due to inventory hedging impacts in a rising price environment and less advantageous pipeline arbs. In addition, realized margins decreased due to lower Gulf Coast clean product realizations. Our refining results and market capture of 69% were also negatively impacted by maintenance activities on downstream conversion units, as well as the renewable fuels conversion at Rodeo. Marketing and specialties adjusted first quarter pre-tax income was $345 million, a decrease of $87 million from the previous quarter. The decrease was mainly due to lower domestic marketing and lubricant margins. Our adjusted effective tax rate was 21%.
Slide nine shows the change in cash during the first quarter. We started the quarter with a $3.3 billion cash balance. Cash from operations excluding working capital was $1.2 billion. There was a working capital use of $1.4 billion, mainly reflecting a $2.6 billion increase in inventory, partially offset by benefits in accounts payables and receivables, which included the impact of rising commodity prices. Net debt issuances were $802 million. We returned $1.6 billion to shareholders through share repurchases and dividends. Additionally, we funded $628 million of capital spending. Our ending cash balance was $1.6 billion. This concludes my review of the financial and operating results. Next I'll cover a few outlook items for the second quarter.
In chemicals, we expect the second quarter Global O&P utilization rate to be in the mid-90s. In refining, we expect the second quarter worldwide crude utilization rate to be in the mid-90s. Turnaround expense is expected to be between $100 million and $120 million, excluding Rodeo. We anticipate second quarter, corporate and other costs to come in between $330 million and $350 million, reflecting higher net interest expense. Now we will open the line for questions, after which Mark will make closing comments.
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