Phillips 66 Profit Rises as Oil Market Downturn Lowers Costs

  • Shares surge to all-time high on jump in refining profits
  • Refining 'healthiest' segment of energy: Raymond James

Phillips 66, the largest U.S. refiner by market value, said profit rose as the worst oil market in decades continues to benefit companies that turn the crude into fuel.

Third-quarter net income climbed to $1.6 billion, or $2.90 a share, from $1.18 billion, or $2.09 a year earlier, the Houston-based company said in a statement Friday. Excluding one-time items, the per-share result was 77 cents more than the $2.25 average of 16 analysts’ estimates compiled by Bloomberg. Shares surged 4.6 percent to $90.43 at 1:50 p.m. in New York, after touching an all-time high.

"It was a beat across the board in every one of the company’s segments," Justin Jenkins, an analyst at Raymond James in Houston who rates the shares the equivalent of a buy and owns none, said Friday in a phone interview. "Refining is clearly the healthiest segment of the overall energy value chain at the moment, and that’s probably going to continue for some time."

Since being spun out of ConocoPhillips in 2012, the company has more than doubled in value. Refiners, which have far outperformed the rest of the energy sector this year, have surged as U.S. shale drilling produced an abundance of crude, allowing them to purchase oil domestically for less than it was selling abroad.

Better Models

"The companies are running better business models that they learned from past experience," Fadel Gheit, an analyst at Oppenheimer & Co. in New York, who rates the shares the equivalent of a buy and owns none, said in a phone interview before the results were released. "They are returning cash aggressively to shareholders."

Capital spending is expected to fall 16 percent to $3.88 billion in 2016 from this year’s $4.6 billion, the company said Friday.

"Our best quarterly earnings this year were driven by stronger results from refining and marketing," Chief Executive Officer Greg Garland said in the statement.

The largest shareholder in Phillips 66 is Warren Buffett’s Berkshire Hathaway Inc., which has amassed a stake valued at more than $5 billion.

"Very solid refining performance," Roger Read, an analyst at Wells Fargo, wrote Friday in a note to investors. "Lower turnaround expenses, higher volumes and better margins drove the outperformance relative to our estimates."

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