Phillips 66 Misses Q1 Profit Estimates on Weaker Margins

Phillips 66 NYSE:PSX

Phillips 66  (NYSE:PSX) reported lower-than-expected quarterly profits, attributed to a decline in refining margins, particularly at its Gulf Coast operations.

Refining margins have retreated from their post-invasion peaks following Russia’s actions in Ukraine in 2022. This decrease can be attributed to an increase in global refining capacity, resulting in a reduction in fuel prices.

In the first quarter, the company noted a 47% slump in realized margins to $10.91 per barrel compared to the previous year, with Gulf Coast margins experiencing nearly a 50% decline.

Shares of Phillips 66 dropped nearly 3% on Friday in response to the earnings miss. Analysts from TD Cowen noted that the market may have anticipated weaker results in West Coast refining due to the Rodeo startup, but margins were also lower than expected in other regions.

Despite maintaining crude capacity utilization above last year at 92%, Phillips’ market capture, a measure of refining profit compared to industry benchmarks, fell to 69% in the quarter from 93%.

Activist investor Elliott, who disclosed a $1 billion stake in Phillips last year, has been urging the company to address refining underperformance and accelerate cost-cutting efforts.

Phillips CEO Mark Lashier attributed the results to maintenance activities that restricted the production of higher-value products. However, rival Valero surpassed profit estimates on Thursday despite routine maintenance work at its refineries.

Lashier stated that the heavy maintenance activities experienced in the first quarter were largely completed.

In addition to addressing operational challenges, Phillips 66 announced the launch of a sales process for its retail marketing business in Germany and Austria as part of its plan to divest non-core assets worth about $3 billion.

The Houston-based company reported adjusted earnings of $1.90 per share for the three months ended March 31, falling short of analysts’ estimates of $2.17 per share, according to LSEG data.

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