Skip to content
    PSX
    Earnings call· Dec 2024(Q4 FY24)

    Phillips 66 Q4 FY24 earnings call PSX

    Jan 31, 2025 Source

    Executive summary

    Phillips 66 Q4 FY24 — Midstream Growth and Strategic Priorities Achieved

    Phillips 66 delivered strong operational performance in Q4 FY24, achieving key strategic targets including significant asset dispositions and cost savings, while advancing its Midstream growth strategy. Despite a challenging margin environment and an adjusted loss driven by refinery depreciation, the company is setting new 2025-2027 priorities focused on shareholder returns, debt reduction, and organic growth in Midstream and Chemicals, aiming for a more resilient, integrated portfolio.

    Highlights

    5

    • Achieved shareholder distribution target of $13.6 billion since July 2022.

    • Exceeded $400 million synergy target for DCP Midstream acquisition, capturing $500 million run rate synergies.

    • Exceeded $1.4 billion run rate business transformation savings goal, achieving $1.5 billion.

    • Exceeded $3 billion noncore asset disposition target, reaching $3.5 billion.

    • Refining achieved second consecutive year of above industry average crude utilization and record clean product yields (88% in Q4, 87% for full year).

    Concerns

    5

    • Adjusted loss of $61 million or $0.15 per share, including a $230 million pretax impact from accelerated depreciation at Los Angeles Refinery.

    • Total company adjusted earnings decreased $920 million compared to the prior quarter.

    • Chemicals results decreased due to lower polyethylene chain margins and higher costs from turnarounds.

    • Marketing and Specialties results were lower due to seasonally lower margins and a $100 million negative sequential impact from inventory hedging reversal.

    • Net debt-to-capital ratio ended higher than target level.

    Guidance & targets

    16
    CategoryTargetConfidence
    Refining adjusted controllable cost (excluding turnarounds)
    $5.50 per barrel
    high materiality
    High
    Midstream and Chemicals mid-cycle adjusted EBITDA growth
    additional $1 billion
    high materiality
    High
    Non-Refining mid-cycle EBITDA
    $10 billion
    high materiality
    High
    Total debt
    $17 billion
    high materiality
    Medium
    Shareholder distributions
    over 50% of operating cash flow
    high materiality
    High
    Chemicals global O&P utilization rate
    mid-90s
    medium materiality
    High
    Refining worldwide crude utilization rate
    low 80s
    medium materiality
    High
    Refining turnaround expense
    $290 million and $310 million
    medium materiality
    High
    Refining turnaround expense
    $500 million and $550 million
    medium materiality
    High
    Corporate and other costs
    $310 million and $330 million
    low materiality
    High
    Depreciation and amortization
    approximately $3.3 billion
    medium materiality
    High
    Polyethylene chain margins
    continued margin improvement
    medium materiality
    Medium
    Gasoline demand growth (global)
    up 0.8%
    medium materiality
    High
    Gasoline demand growth (U.S.)
    up 0.2%
    medium materiality
    High
    Distillate demand growth (global)
    up 1% over '24
    medium materiality
    High
    Distillate demand growth (U.S.)
    up about 2%
    medium materiality
    High

    Segment performance

    5
    SegmentRevenueYoYQoQMargin
    Midstream
    Results increased mostly due to record fractionation and LPG export volumes in addition to higher margins on LPG exports.
    Record fractionation volumesRecord LPG export volumesHigher margins on LPG exports
    		——increased—
    Chemicals
    Results decreased mainly due to lower polyethylene chain margins and higher costs related to turnarounds and maintenance.
    Lower polyethylene chain marginsHigher costs related to turnarounds and maintenance
    		——decreased—
    Refining
    Lower results primarily reflect weaker crack spreads and the full quarter of accelerated depreciation of our Los Angeles Refinery. Capture of the new market indicator was 105%. The increase in market capture was partly the result of record clean product yield for the quarter, which included the benefits of butane blending.
    Weaker crack spreadsFull quarter of accelerated depreciation of Los Angeles RefineryMarket capture: 105%Record clean product yield: 88% (Q4 FY24)Clean product yield: 87% (full year FY24)Crude utilization: 94% (Q4 FY24)Mechanical availability on crude units: 98% (Q4 FY24)Utilization across entire year: 95% (FY24)
    		——decreased—
    Marketing and Specialties
    Results were mostly lower due to seasonally lower margins. Q3 earnings benefited from $50 million inventory hedging impact, which reversed in Q4 creating a $100 million negative sequential impact.
    Seasonally lower marginsInventory hedging impact: -$100M sequential
    		——lower—
    Renewable Fuels
    Results increased due to higher margins at the Rodeo Complex as well as stronger international results. Processed higher CI feed and did not produce renewable jet fuel for the quarter.
    Higher margins at Rodeo ComplexStronger international resultsProcessed higher CI feedNo renewable jet fuel production in Q4
    		——increased$28 million

    Operational metrics

    27
    Reported earnings
    $8 million
    Q4 FY24

    Reported earnings for the quarter.

    Reported EPS
    $0.01
    Q4 FY24

    Reported earnings per share for the quarter.

    Adjusted loss
    $61 million
    Q4 FY24

    Adjusted loss for the quarter.

    Adjusted EPS
    -$0.15
    Q4 FY24

    Adjusted loss per share for the quarter.

    Accelerated depreciation (LA Refinery) pretax impact
    $230 million
    Q4 FY24

    Pretax impact of accelerated depreciation due to plan to cease operations at Los Angeles Refinery at end of 2025.

    Working capital benefit
    $297 million
    Q4 FY24

    Mainly reflecting a reduction in inventories.

    Total shareholder distributions
    $1.1 billion
    Q4 FY24

    Returned to shareholders through share repurchases and dividends.

    Share repurchases
    $647 million
    Q4 FY24

    Share repurchases made in the quarter.

    Capital spending
    $506 million
    Q4 FY24

    Funded capital spending.

    Ending cash balance
    $1.7 billion
    Q4 FY24

    Cash balance at the end of the quarter.

    Total company adjusted earnings decrease
    $920 millioncompared to prior quarter
    Q4 FY24

    Decrease in total company adjusted earnings compared to the prior quarter.

    Refining adjusted controllable cost
    ~$5.90
    FY24

    Operating expense per barrel, excluding turnarounds, for full year 2024.

    Refining adjusted controllable cost delta
    $0.40
    FY24 vs target

    Delta between FY24 cost ($5.90/barrel) and the new target ($5.50/barrel).

    Cost reduction (Refining OpEx)
    $650 million
    cumulative

    Cumulative operating expense reduction, including share of WRB.

    Gasoline demand growth (global)
    0.8%
    2025 forecast

    Forecasted gasoline demand growth for 2025.

    Gasoline demand growth (U.S.)
    0.2%
    2025 forecast

    Forecasted gasoline demand growth for 2025.

    Distillate demand growth (global)
    1%over 2024
    2025 forecast

    Forecasted distillate demand growth for 2025.

    Distillate demand growth (U.S.)
    2%
    2025 forecast

    Forecasted distillate demand growth for 2025.

    Global distillate demand
    0.9%lower than 2023
    2024

    Global distillate demand in 2024 was lower than 2023.

    U.S. distillate demand
    0.4%vs 4Q prior year
    Q4 2024

    U.S. distillate demand in Q4 2024 compared to prior year.

    U.S. distillate inventories
    8%under 5-year averages
    current

    Current U.S. distillate inventories are significantly below historical averages.

    Mexican crude imports to U.S.
    450,000
    current

    Volume of Mexican crude imported into the U.S.

    Marketing inventory hedging impact
    -$100 millionsequential impact
    Q4 FY24

    Negative sequential impact from reversal of Q3 inventory hedging benefit.

    Marketing volume impact
    3%
    January Q1 FY25

    Volume impact from winter storms and California fires in January.

    Midstream organic growth rate
    mid-single digits
    annual

    Expected annual organic growth rate for Midstream.

    Midstream organic EBITDA growth
    $500 million
    annual

    Expected annual EBITDA growth from organic opportunities within the $2 billion annual capital program.

    European retail EBITDA
    $300 million
    annual

    Estimated annual EBITDA for the German-Austria retail business, which is under active discussion for divestiture.

    Industry KPIs

    5
    MetricValueDetails
    Pipeline throughput storage125%
    Sanctioned expansion backlog$500 millionEBITDA
    Cost of supply unit cash cost$1per barrel
    FCF shareholder distributions$13.6 billionUSD
    Weather event volume earnings impact3%

    Orderbook & backlog

    2
    Share buyback authorization$647 millionQ4 FY24

    Part of $13.6 billion distributed since July 2022

    Asset divestitures$3.5 billionJanuary 2025

    exceeded $3 billion target

    Cash proceeds received for Coop and Gulf Coast Express dispositions

    Deals & partnerships

    7
    DCP MidstreamRoll-up to gain control of assets and align with wholly owned assets.

    Allowed consolidation into a full wellhead-to-market strategy.

    PinnacleAcquisition of high-quality assets complementary to existing footprint.

    Prime example of inorganic growth strategy.

    EPIC NGLAcquisition of high-quality assets complementary to existing footprint.

    Furthers vision of being the leading integrated downstream energy provider. Provides needed Permian pipeline capacity and room to grow G&P footprint.

    Coop and Gulf Coast ExpressDivestiture of noncore assets.$2.1 billion

    Contributed to exceeding the $3 billion noncore asset disposition target, bringing total cash proceeds to $3.5 billion.

    European retail (Austria and Germany)Divestiture of retail business in Europe.

    Part of ongoing portfolio optimization to unlock value and redeploy proceeds.

    United AirlinesContract to sell Sustainable Aviation Fuel (SAF).

    Announced in Q4, for up to 8 million gallons of SAF.

    AirlinesContracts to supply Sustainable Aviation Fuel (SAF).

    Secured a couple more contracts in Q1 to supply SAF to airlines.

    Capital programs

    5
    DCP Midstream acquisition synergiescompleted

    Benefit: $500 million run rate synergies

    Exceeded $400 million synergy target.

    Business transformation savingscompleted

    Benefit: $1.5 billion savings

    Exceeded ambitious goal of $1.4 billion in run rate savings.

    Los Angeles Refinery cessation of operationsplanned

    Benefit: reduced earnings per share by $0.43 in Q4 FY24

    Includes $230 million pretax impact of accelerated depreciation in Q4 FY24.

    CPChem mega-projects (U.S. Gulf Coast and Qatar)underway

    Expected to start up in late 2026, contributing to Chemicals mid-cycle adjusted EBITDA growth.

    Pinnacle expansion plantunderway

    Will bring on expansion plant at Pinnacle in July of '25.

    Risks & headwinds

    7
    Challenging margin environmentQ4 FY24

    Total company adjusted earnings decreased $920 million compared to prior quarter; adjusted loss of $61 million or $0.15 per share.

    Mitigation: Leveraging integrated portfolio, focusing on operational performance and cost reductions.

    Regulatory uncertainty in Renewable FuelsOngoing

    Impacts renewable diesel margins.

    Mitigation: Managing flexible system, buying more feedstock than needed to manage optionality, using linear program to determine most valuable products.

    Potential tariffs on Canadian and Mexican crude

    Could widen WCS differential, firm heavy crude prices due to logistics inefficiency.

    Mitigation: Anticipating market adjustments; TMX filling, inventory build, and differential widening to incentivize crude movement.

    Ethylene chain marginsQ4 FY24

    Lower polyethylene chain margins and higher costs related to turnarounds and maintenance.

    Mitigation: Anticipating continued margin improvement through 2026, supported by macro demand and North American export strength.

    Seasonal weakness in MarketingQ4 FY24

    Lower margins in Q4, $100 million negative sequential impact from inventory hedging reversal.

    Mitigation: Expect Q1 to follow historical trend, new business should close gap from January volume impacts.

    Accelerated depreciation at Los Angeles RefineryQ4 FY24 and through 2025

    $230 million pretax impact in Q4, $0.43 EPS reduction.

    Mitigation: Cessation of operations planned for end of 2025, which will materially impact cost structure.

    Net debt-to-capital ratio higher than targetQ4 FY24

    Ended higher than target level.

    Mitigation: Making debt reduction a key component of new commitments, targeting $17 billion total debt as early as end of 2025.

    What to watch in Q1 FY25

    5

    Total debt reduction

    as early as end of 2025
    CurrentAbove $17 billion (implied)
    Target$17 billion

    Why it matters

    Key financial target for balance sheet strength and capital allocation flexibility.

    We also plan to reduce total debt to $17 billion as early as the end of this year, depending on the margin environment and the timing of📎 planned dispositions.

    Q&A highlights

    6

    How will Midstream grow, organically or via M&A, and how fast?

    Management stated a focus on both organic growth (mid-single digits annually, clear line of sight to $500M EBITDA growth within $2B capex) and strategic, accretive M&A (like Pinnacle and EPIC) that leverages existing footprint and opens organic opportunities. Growth is returns-focused, not just scale.

    “we believe we can grow organically at a mid-single digits growth rate on an annual basis. That's what you see in the slide deck here, growing to $500 million of EBITDA.”

    asked by Neil Mehta · answered by Mark Lashier

    1 min read5 chapters

    Detailed Narrative

    01

    Strategic Achievements and Future Focus

    Phillips 66 successfully completed its 2022-2024 strategic priorities, including significant asset dispositions and cost savings. The company is now embarking on new 2025-2027 priorities, emphasizing shareholder returns, debt reduction, and organic growth in its Midstream and Chemicals segments, aiming for a more resilient and integrated business model.

    02

    Midstream Expansion and Integration

    The company's Midstream business is undergoing a transformation, with the EPIC NGL transaction expected to nearly double EBITDA between 2021 and late 2024, increasing mid-cycle adjusted EBITDA to $4 billion. Management views both organic growth and strategic M&A as avenues for expansion, focusing on scalable opportunities that enhance the platform and leverage existing infrastructure.

    03

    Refining Operational Excellence

    Refining operations demonstrated strong performance, achieving above-industry-average crude utilization for the second consecutive year and record clean product yields (88% in Q4 FY24). The company is targeting further cost reductions to $5.50 per barrel (excluding turnarounds) by 2026, driven by continuous reliability improvements and high-return, low-capital projects.

    04

    Chemicals and Renewable Fuels Outlook

    While Chemicals faced headwinds from lower polyethylene chain margins and higher turnaround costs in Q4, management anticipates a slow but steady recovery in margins through 2026, supported by global demand growth and North American export strength. Renewable Fuels broke even in Q4 with $28 million in earnings, but the outlook remains uncertain due to regulatory ambiguity surrounding credits like PTC and LCFS.

    05

    Capital Allocation and Balance Sheet Management

    Phillips 66 aims to return over 50% of operating cash flow to shareholders and reduce total debt to $17 billion by the end of 2025. The company views its balance sheet on a sum-of-the-parts basis, with Midstream and Marketing & Specialties providing stable cash generation, allowing for flexibility in debt reduction, incremental buybacks, and bolt-on acquisitions.

    AI-generated summary of the company’s earnings call. Not investment advice.