Adjusted earnings, a non-GAAP figure, fell to ($1.15) per share from $1.54 one year earlier. The principal exclusions contributing to the $0.08 per share difference in the latest quarter between the GAAP and Non-GAAP earnings were: Impairments [$0.22 per share], inventory adjustments [($0.06) per share], and Tax impacts [($0.12) per share]. Non-GAAP earnings, by excluding unusual and non-cash items that could obscure the results of a business's principal, ongoing operations, are intended to be cleaner measures of corporate profits.
This post compares the quarterly Income Statement published by Phillips to the estimates I made in a previous “Look Ahead” post. My estimates were based on publicly available guidance provided by Phillips's management to financial analysts, news reports, and trends in the company's historical results. Unless otherwise mentioned, all reported values mentioned below are GAAP figures.
First, a little background about the company: Phillips 66 is an energy company with refining, midstream, downstream, and chemical operations. An independent for decades, Phillips Petroleum merged with Conoco in 2002 to form the giant ConocoPhillips. Phillips became independent again in 2012 -- this time with the iconic "Phillips 66" brand as the company name -- when it was spun off from ConocoPhillips. Phillips 66 operates refineries for converting crude oil into gasoline and other fuels; the company's San Francisco refinery is being transformed to process renewable oils, instead of crude oil. The company's products are sold by a large number of branded gas stations and other outlets. Through the Phillips 66 Partners master limited partnership, Phillips 66 also owns pipelines and terminals for transporting energy products between processing plants and storage facilities. The company's chemicals business is a 50 percent share of Chevron Phillips Chemicals Company.
The following table is a simplified version of Phillips's Income Statement for the quarter that ended in December 2020, with company-reported numbers along side my predictions. Figures from the year-earlier quarter are also provided for comparative purposes.
Revenue in the December 2020 quarter totaled $16.4 billion, 44 percent less than last year's $29.1 billion. The Refined petroleum products business was responsible for 77 percent of overall revenue, and this unit's revenue percent fell by 43.8 percent compared to the year-earlier result. The Crude oil resales business contributed 13 percent of revenue, and this unit's revenue decreased by 37.4 percent. The Natural gas liquids unit supplied 6 percent of revenue, and this business's revenue fell by 5.8 percent.
I was expecting Phillips to report revenue of $16.7 billion for the December 2020 quarter. The actual amount fell short of my estimate by $291.0 million (1.7 percent).
The Cost of Revenue (also known as Cost of Goods Sold) was $16.3 billion in the latest quarter, which translates into a Gross Margin of 0.5 percent of revenue. Since it was lower than the 5.5 percent Gross Margin achieved in the year-earlier quarter, it's a sign that Phillips sold its products and services at less profitable prices relative to production costs. I was expecting the Gross Margin to be 4.2 percent in the December 2020 quarter, and Phillips missed that prediction by 3.7 percent.
Sales, General, and Administrative expenses totaled $519 million in the December 2020 quarter, down from $570 million one year ago. SG&A expenses increased from 2.0 percent to 3.2 percent of quarterly revenue, which shows Phillips spent more per dollar of sales on indirect operational costs, such as marketing. I had estimated that SG&A expenses would be 3.3 percent of revenue, and the actual percentage turned out to be lower than the prediction.
The last operating expense line on the Income Statement is where the sum of other operating income and charges, such as restructuring, may be listed. For Phillips the amount listed on this line was a $106 million loss in the latest quarter. I was expecting a net loss of $0 million.
Phillips's Operating Income was ($904) million in the quarter. Operating Income fell short of my ($200) million estimate by $704 million.
Interest and other non-operating items summed to a net expense of $107 million. My estimate for non-operating items was $100 million.
The effective income tax rate fell by 23.0 percent to 19.5 percent, which had a positive effect on net income. I expected the tax rate to be 16.7 percent.
Net income attributable to Phillips was ($539) million, ($1.23) per share in the quarter ending December 2020. The figures for the year-earlier quarter were $736 million, $1.64/share. My earnings estimate for the latest quarter was $100 million ($0.23/share), so Phillips 66 earned $1.45 per share less than I had expected.
In summary, the figures in the reported results that were better than expected, worse than expected, and about the same as what I had expected are listed below:
–Better-than-expected figures: SG&A + Non-operating income
–Worse-than-expected figures: Gross Margin + Net interest + Income tax rate + Equity income
–Figures close to expectations : Revenue growth + Depreciation + R&D + Non-operating expenses
This post is not investment advice, and the accuracy of the information, tables, charts, and any commentary presented is not guaranteed. Readers are encouraged to independently verify all data using information from original sources. The Income Statements discussed in these blog posts have not been audited and may differ in material respects from those published by the subject company. These differences are intended to facilitate analysis and cross-company comparisons. Complete financial statements with notes can usually be found in the 10-Q and 10-K filings companies submit to the Securities and Exchange Commission (SEC).
#phillips #psx #gauges #gcfr #gcfr2 #QtrlyRpt #nac_financialanalysis
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