Phillips 66 Offers Bad News with a Dash of Hope

    Phillips 66 and stock news 2017

    It can hardly be called good news, bad news, because the latest earnings report was almost entirely filled with bad news. The only really positive thing about it was the commentary offered by Greg Garland, the company’s CEO.

    Unlike last quarter, in which he offered much more detail, Garland pretty much just repeated the same sentiments that Phillips 66 has seemed to have made into a mantra:

    “We achieved record safety performance and refining utilization rates, started up the Freeport LPG export facility and returned $2.3 billion to shareholders through dividends and share repurchases. However, fourth-quarter financial results were disappointing, and reflect challenging market conditions.

    We expect to generate additional free cash flow and create shareholder value as we complete major growth projects in 2017. Our portfolio of refining, midstream, chemicals and marketing assets positions us to capture opportunities across the value chain. We remain committed to operating excellence and growing our higher-valued businesses, while maintaining a strong balance sheet and disciplined capital allocation.”

    One thing remains clear. Phillips 66 places a very high value on the satisfaction of the company’s shareholders.

    Management seems determined to increase shareholder value by raising its dividend and buying back shares. However, in order to do so while also meet the company’s capital spending requirements, Phillips 66 will need additional cash on hand.

    That goal appears to be cautiously doable.

    The company expects to see results by the end of the year from both its CPChem petrochemical plant and its Freeport LPG export terminal. Additionally, some of the capital constraints on the company would be alleviated somewhat by consolidating DCP Midstream into one entity. That would also be good for the company over the long term.

    All of these factors combined add up to 2017 looking like a good year. They will also provide a hedge against potential refining margin weakness if the current refining environment doesn’t improve during the year.