Phillips 66 quarterly earnings surprise on the upside (Part 9 of 9)
Phillips 66 just about gives a positive return
Phillips 66 (PSX) outperformed the industry and broader market over the past year. Meanwhile, its returns have decreased since October 2014. As of January 30, Phillips 66 2014 stock returned ~1%.
In comparison, the Energy Select Sector SPDR ETF (XLE) has returned -5.8%, and the broad market SPDR S&P 500 ETF Trust (SPY) is up ~16.7%.
XLE has some of the top refiners in its top ten holdings such as Valero Energy (VLO) and Tesoro Corporation (TSO). In the past year, VLO and TSO have outperformed PSX. TSO’s and VLO’s one-year returns are 63.9% and 10.4%, respectively. The next part of this series looks at the relative valuation of these companies.
High shareholder returns
Besides the positive factors benefitting the company in 2014, Phillips 66 returns on shareholder investments have been pretty decent. In 2014, Phillips 66 returned $4.7 billion of capital to shareholders. The company paid $1.1 billion in dividends and repurchased 29.1 million shares of common stock totaling $2.3 billion. What’s more, the company exchanged its flow-improver business for 17.4 million shares, returning $1.35 billion in capital.
Since August 2012, the company has repurchased 73.2 million shares for $4.9 billion, as part of a $7 billion share repurchase authorization.
Warren Buffett’s Berkshire Hathaway (BRK-B) acquired the shares of PSX’s Phillips Specialty Products Inc. (PSPI) in December 2013.
Negative factors affecting PSX returns
There are a couple of indicators investors should keep an eye on:
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Low operating cash flows – Although its capex increased 59%, cash flow from operations declined 41% in 2014 over the previous year. From $4.24 billion in 2013, its FCF (defined as cash flow from operations less capital expenditure) turned to -$244 million in 2014. This caused free cash flow to turn negative last year.
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Higher debt level and interest costs – Long-term debt level has ballooned since 2012 and so has interest expense. For more on this topic, read Why high debt could be a concern for Phillips 66.
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