Refining Margins Prove Why Warren Buffett Took a Stake in Phillips 66

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Oil refiner Phillips 66 (NYSE: PSX) reported third-quarter 2015 earnings before markets opened Friday. The refining company reported adjusted diluted earnings per share (EPS) of $3.02, compared with EPS a year ago of $2.09. Quarterly revenues totaled $26.42 billion, compared with revenues of $41.05 billion in the third quarter of 2014. The consensus estimates called for EPS of $2.24 on revenues of $29.86 billion.

On a GAAP basis, Phillips 66 posted EPS of $2.90 on income of $1.58 billion. Adjusted net earnings totaled $1.65 billion. Refining contributed $1.05 billion to adjusted earnings, up from $604 million sequentially and $558 million in the third quarter of 2014.

The company’s capital budget for next year was set at $3.88 billion, down from a projected $4.6 billion in 2015. Through the end of the third quarter, capital spending has totaled $3.3 billion this year.

The company did not offer guidance in its earnings release, but consensus estimates call for fourth-quarter EPS of $1.28 on revenues of $25.69 billion. For 2015, EPS is forecast at $6.81 on revenues of $108.32 billion. EPS to date in 2015 totals $6.36, so expect a big jump in the consensus estimate.

CEO and Chairman Greg Garland said:

Our best quarterly earnings this year were driven by stronger results from Refining and Marketing. Higher refining capacity utilization and product margins increased financial results for these businesses.

Here are some details on refining margins:

  • In the central United States, margin per barrel was $20.97 in the third quarter, up from $17.84 in the third quarter last year.
  • In the West and Pacific coast, margin per barrel rose from $9.87 to $18.29.
  • In Europe and the Atlantic Basin, margins slipped from $10.60 to $10.27.
  • Worldwide margin rose by more than $3 a barrel.

Shares of Phillips 66 traded up about 1.2% in Friday’s premarket, at $87.50 in a 52-week range of $57.33 to $86.92. The consensus target price for the shares was around $94.08 before this latest report.

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