Q4 2024 Earnings Summary
- Phillips 66 is strategically transforming its business by growing its Midstream operations organically at a mid-single-digit annual growth rate, leveraging its strong NGL value chain and focusing on return-enhancing opportunities within its existing footprint, aiming to grow EBITDA by $500 million within a $2 billion annual capital program.
- The Refining segment has demonstrated strong operational performance with 8 consecutive quarters above industry average utilization, achieving 95% utilization for the year and 98% mechanical availability on crude units, driven by successful reliability programs, indicating potential to exceed its $5 billion EBITDA mid-cycle target.
- The Chemicals segment is poised to benefit from supportive macro trends, including growing demand, rationalizations in Europe, and record exports of North American polyethylene, playing to the strengths of CPChem and expected to improve margins steadily through 2026, with new assets coming online by the end of 2026 stepping into healthy margins.
- Phillips 66 experienced a significant decline in marketing margins in Q4 2024, with a $100 million negative sequential impact due to inventory hedging adjustments and other factors, and expects continued weakness in Q1 due to a 3% Marketing volume impact from winter storms and California fires.
- The company anticipates continued weakness in renewable diesel margins due to regulatory uncertainty affecting margins, including lack of clarity on the PTC, RVO, LCFS rules, tariffs, and small refinery exemptions, which may negatively impact the profitability of the Renewable Fuels segment.
- Potential tariffs on Canadian and Mexican crude imports could increase crude costs for Phillips 66, leading to higher feedstock costs and inefficiencies in logistics, which may negatively impact refining margins and profitability.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | ↓ 12% (from $38,739M in Q4 2023 to $33,986M in Q4 2024) | Lower revenue performance across core segments drove the decline. The fall was largely due to sharp drops in Refining (↓25%) and Marketing & Specialties (↓16%) revenues, partially offset by gains in Midstream (↑18%) and a surge in NGL and Natural Gas (↑43%), as well as lower geographic revenues in the U.S. and U.K. |
Refining Revenue | ↓ 25% (from $10,176M to $7,672M) | A notable contraction in refining revenues is attributed to deteriorated market conditions such as lower realized margins and diminished crack spreads, reflecting broader industry pricing pressures compared to Q4 2023. This sharp decline outpaced previous period performance, putting pressure on overall revenues |
Marketing and Specialties | ↓ 16% (from $24,286M to $20,446M) | The decline in this segment was driven by lower margins and softer market conditions that affected product pricing, with potential contributions from legal expenses and other operational challenges compared to the stronger performance seen in Q4 2023 |
Midstream Revenue | ↑ 18% (from $3,799M to $4,463M) | Midstream revenue improved as increased throughput and favorable margins helped offset declines in other segments. This positive change contrasts with the losses seen in Refining and Marketing & Specialties, demonstrating the segment’s resilience in a shifting market environment |
NGL and Natural Gas Revenue | ↑ 43% (from $2,903M to $4,153M) | Substantial growth in NGL and Natural Gas revenue indicates a strong recovery in commodity pricing and volume. This surge, a marked improvement over Q4 2023, reflects higher market demand and pricing adjustments despite overall revenue headwinds |
U.S. Revenue | ↓ 14% (from $31,263M to $26,782M) | Lower U.S. revenue resulted from declining prices for crude oil, refined products, and NGL, coupled with reduced margins, underscoring the market’s challenging pricing environment relative to Q4 2023 |
U.K. Revenue | ↓ 27% (from $3,753M to $2,733M) | The U.K. segment suffered a steeper decline compared to the U.S., as lower commodity prices and reduced sales volumes significantly eroded revenue, marking a heightened regional impact versus Q4 2023 |
Net Income | ↓ dramatically (from $1,260M to $25M) | Net Income fell drastically due to a convergence of factors: lower refining margins, legal accruals, shutdown costs, and impairments massively undermined profitability. The dramatic drop from the previous period's robust gains underscores how one-off gains and improved market conditions in Q4 2023 were not sustained into Q4 2024 |
Basic EPS | ↓ >98% (from 2.91 to 0.01) | Basic EPS collapsed largely as a function of the plummeting net income and reduced profitability, reflecting compounded effects from lower refining performance, legal charges, and operational challenges compared with Q4 2023 |
EBIT | Turned negative (-$13M) | EBIT’s decline into negative territory was driven by multiple headwinds—refining losses (including shutdown costs and lower crack spreads), legal accruals in Marketing & Specialties, seasonal costs in Midstream, and impairments—indicating a significant deterioration in core operational performance relative to previous quarters |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Worldwide crude utilization rate | Q4 2024 | no prior guidance | low to mid-90% range | no prior guidance |
Turnaround expense | Q4 2024 | no prior guidance | $125M–$135M | no prior guidance |
Full-year turnaround expense | FY 2024 | no prior guidance | $485M–$495M | no prior guidance |
Global O&P utilization rate | Q4 2024 | no prior guidance | mid-90% range | no prior guidance |
Corporate & other costs | Q4 2024 | no prior guidance | $300M–$330M | no prior guidance |
Additional depreciation (LA closure) | Q4 2024 | no prior guidance | $230M | no prior guidance |
Global O&P utilization rate | Q1 2025 | no prior guidance | mid-90% range | no prior guidance |
Worldwide crude utilization rate | Q1 2025 | no prior guidance | low 80% range | no prior guidance |
Turnaround expense | Q1 2025 | no prior guidance | $290M–$310M | no prior guidance |
Corporate & other costs | Q1 2025 | no prior guidance | $310M–$330M | no prior guidance |
Turnaround expense | FY 2025 | no prior guidance | $500M–$550M | no prior guidance |
Depreciation & amortization | FY 2025 | no prior guidance | $3.3B total, incl. $230M/quarter accelerated | no prior guidance |
Debt reduction | FY 2025 | no prior guidance | $17B total debt target | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Dividend Payments | FY 2024 | Approximately US$2 billion per year | US$1,882 million total for FY 2024 (Q1: US$448, Q2: US$485, Q3: US$477, Q4: US$472) | Met |
Return of Capital to Shareholders | FY 2024 | Over 50% of operating cash flow returned | 105% of operating cash flow (US$3,785 million returned vs. ~US$3,610 million OCF) | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Midstream growth | Consistently highlighted synergy from DCP integration, expansions in Q2–Q3 (e.g., Pinnacle acquisition), stable cash generation. | Emphasized wellhead-to-market strategy, continuing synergy capture from Pinnacle and EPIC, mid-cycle EBITDA rising to $4B. | Consistent focus, remains a key bull case and growth driver. |
Refining cost reductions | Q1–Q3: Achieved $1/bbl cost reduction, removing $600M+ from the cost profile. | Focus replaced by reliability improvements, minimal references to further cost cuts. | Structural cost improvements overshadowed by new reliability focus in Q4. |
Renewable fuels expansion | Positive expansions through Rodeo and Pinnacle conversions in Q1–Q3, optimism about margins earlier despite some concerns. | Progress with SAF contracts, but overshadowed by regulatory uncertainties, posted $28M in Q4 earnings. | Sentiment shifted from optimism to concern due to new regulatory headwinds. |
Refining reliability | Ongoing improvements noted throughout Q1–Q3, with above-industry-average utilization and cost reductions. | Achieved 94% utilization, 98% mechanical availability, record clean product yield of 88%. | High reliability emphasized as key to capturing market opportunities in Q4. |
Decline in marketing margins | Q1–Q3: Mostly stable or improved marketing margins, no significant declines mentioned. | New mention in Q4: impacted by seasonal weakness, reversal of hedging benefit, $100M negative impact. | Emergent near-term headwind with potential for continued volatility. |
Chemicals segment expansion | Incremental capacity additions in Q1–Q3, strong utilization in earlier quarters, mid-cap projects ramping up. | New focus on mega-projects (U.S. Gulf Coast, Qatar) with start-up in late 2026, aiming to help reach $10B non-Refining EBITDA by 2027. | Long-term growth opportunity, near-term margins challenged by higher costs and lower poly spreads. |
Potential tariffs on Canadian and Mexican crude | No mention in prior periods. | New in Q4: Could prompt re-routing of supply, widen WCS differentials, and affect heavy crude pricing. | Emergent risk factor with high uncertainty on market impacts. |
Regulatory uncertainty for renewable diesel | Q2–Q3: More general caution, but not as pronounced; focus was on feedstock, credit markets, and SAF ramp. | New in Q4: Concerns over PTC, RVO, LCFS rules, tariffs, and small refinery exemptions hurting margins. | Worse policy outlook introducing a key bear case for renewables. |
LA refinery closure | Announced in Q3 due to 75% decline in in-state crude production, regulatory pressures, and falling demand. | Q4 disclosed ongoing $230M/quarter accelerated depreciation, closure by Q4 2025, reducing cost structure. | Reflects portfolio optimization, underscores regulatory and demand headwinds on West Coast. |
Shareholder returns focus | Q1–Q3: Emphasized share buybacks, >50% of operating cash flow returned, reached near $13–$15B target. | Q4: Continued distributions (total $13.6B since July 2022), no major new targets disclosed. | Still central strategy, but less pronounced commentary in Q4 versus prior quarters. |
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Midstream Growth Strategy
Q: How will PSX grow Midstream—organically or via M&A?
A: PSX plans to grow its Midstream business through both organic means and targeted M&A. They expect to achieve a mid-single digits annual growth rate organically, aiming for $500 million EBITDA growth. Recent acquisitions like Pinnacle and EPIC are examples of strategic M&A that are accretive and open opportunities for further organic growth. The focus remains on enhancing returns and value creation. -
Capital Structure & Leverage
Q: What's the optimal capital structure for the growing Midstream?
A: PSX targets reducing debt to $17 billion and achieving a sub-30% debt-to-capital ratio. With stable earnings from Midstream and Marketing & Specialties (approximately $6 billion at mid-cycle), they aim for less than 3x debt to EBITDA for these segments. This positions the balance sheet strongly, considering Refining cash flows as upside potential. -
Potential Midstream Separation
Q: Will Midstream become a stand-alone business?
A: PSX believes greater shareholder value is achieved by keeping Midstream integrated with Refining and Chemicals. While acknowledging that markets sometimes undervalue this integration, there's no immediate plan to separate Midstream. They've considered creating a vehicle with a public marker but are focusing on communicating the integration's benefits. -
Refining Mid-Cycle Outlook
Q: Can Refining EBITDA exceed the $5B mid-cycle target?
A: PSX is confident in achieving and potentially exceeding the $5 billion mid-cycle EBITDA in Refining. They've improved reliability, reaching 94% utilization in Q4 and achieving a record 88% clean product yield. Operating expenses have been reduced by $650 million. Ongoing initiatives aim to enhance yields and reduce costs, suggesting potential upside beyond the target. -
Ethylene Chain Margins
Q: When will ethylene margins improve toward mid-cycle?
A: PSX anticipates ethylene margins will improve as global demand grows and European competitors face rationalizations and shutdowns. In 2024, over 50% of North American polyethylene was exported, leveraging their strengths. Margin improvement is expected to continue into 2025 and beyond, with new assets poised to benefit from healthier margins by the end of 2026. -
Renewable Fuels Earnings
Q: What improved renewable fuels earnings significantly?
A: PSX's renewable fuels earnings improved by approximately $150 million quarter-over-quarter, reaching $28 million. This was due to processing higher carbon intensity feedstocks, lowering costs, and not producing renewable jet fuel in the quarter. They anticipate continued weakness in margins due to regulatory uncertainties but are managing feedstock flexibility to optimize performance. -
Refinery Cost Reduction
Q: How will you achieve $5.50/bbl controllable costs?
A: PSX plans to reduce controllable refinery costs to $5.50 per barrel by 2026. The closure of the higher-cost Los Angeles refinery will contribute about 50% of the reduction needed. The remaining gap will be closed through ongoing efficiency improvements, enhanced reliability, and increasing clean product yields across their operations. -
Impact of Tariffs on Crude Supply
Q: How might tariffs affect crude supply and refining?
A: If tariffs are imposed on Canada and Mexico, PSX expects Canadian differentials (WCS) to widen to incentivize crude flow into the U.S., potentially filling the TMX pipeline and increasing inventories. Mexican crude may be displaced, leading to heavier crude markets firming due to logistical inefficiencies. U.S. distillate inventories are about 8% below five-year averages, indicating a tight market. -
EPIC Acquisition Strategy
Q: Does EPIC acquisition pressure need for more processing?
A: The EPIC acquisition provides needed Permian pipeline capacity. PSX's supply currently runs at about 125% of Sand Hills capacity, and with planned expansions, they'll have sufficient supply to fill EPIC capacity. This reduces reliance on third-party pipelines and supports organic growth without immediate pressure to acquire additional processing capacity. -
Asset Dispositions & Allocation
Q: What's the plan for asset sales and capital allocation?
A: PSX has met its asset disposition targets and continues to evaluate its portfolio for value-enhancing opportunities. They're in active discussions to sell retail assets in Austria and Germany, with the German-Austria business contributing about $300 million in EBITDA. Proceeds from asset sales will aid in debt reduction and fund strategic priorities, including shareholder returns.
Research analysts covering Phillips 66.