It has been about a month since the last earnings report for Phillips 66 Partners LP (PSXP). Shares have added about 5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Phillips 66 Partners LP due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Phillips 66 Partners Beats Q1 Earnings on Higher Refined Throughput
Phillips 66 Partners reported first-quarter 2020 earnings per unit of 93 cents, which beat the Zacks Consensus Estimate by a penny. Moreover, earnings increased from the year-ago figure of 92 cents.
Revenues of $404 million fell from $423 million in the year-ago quarter and missed the Zacks Consensus Estimate of $409 million.
The strong earnings were supported by higher throughput volumes of refined petroleum products, and increased pipeline volumes of refined petroleum products and NGLs. Moreover, decreased cost and expenses aided the bottom line. This was partially offset by lower average pipeline revenues and crude oil transportation volumes.
Its 900,000 barrels per day Gray Oak pipeline reached full service on Apr 1. The pipeline transports crude oil from the Permian and Eagle Ford to Texas Gulf Coast destinations. Phillips 66 Partners has a 42.25% ownership in the pipeline.
The partnership provides services through Pipelines, Terminals and Storage, as well as Processing & Other activities.
Pipeline: In first-quarter 2020, the partnership generated revenues of $111 million, up from $109 million in the prior-year period. The uptick was due to higher pipeline volumes of refined petroleum products and NGLs, which rose to 866 thousand barrels per day (Mbpd) from 768 Mbpd in first-quarter 2019. However, pipeline volumes for crude oil declined to 941 Mbpd from the year-ago figure of 959 Mbpd. Moreover, average pipeline revenues of 67 cents per barrel decreased from 70 cents in the year-ago quarter.
Terminals: The partnership generated $43 million revenues, up from $40 million in the year-ago quarter. The upside was backed by higher throughput volumes of refined petroleum products of 748 Mbpd than the year-ago level of 736 Mbpd. Average terminaling revenue per barrel was 39 cents in the quarter, up from 36 cents a year ago. This was partially offset by lower crude oil terminal throughput.
Storage, Processing & Other activities: Through these activities, the partnership generated revenues of $113 million, down from $153 million in the year-ago quarter.
Costs & Expenses Decline
In the March quarter of 2020, the partnership reported operating and maintenance expenses of $88 million, down from $139 million in the year-ago period. Moreover, general and administrative expenses decreased $1 million from the prior-year level to $17 million in the quarter. Total costs and expenses declined to $177 million in first-quarter 2020 from the year-ago period’s $224 million.
Balance Sheet & Capex
As of Mar 31, 2020, the partnership recorded cash and cash equivalents of $92 million, down from $286 million at the end of fourth-quarter 2019. Total debt at the end of the quarter under review was $3,516 million, in line with the fourth-quarter level. Notably, it has $747 million available under the revolving credit facility.
Capital expenditure in the first quarter totaled $211 million, of which $196 and $15 million were directed toward growth and maintenance, respectively.
Strategic Update & Outlook
Phillips 66 Partners has various ongoing projects that are backed by long-term volume commitments and are expected to deliver typical midstream returns.
The Sweeny to Pasadena capacity expansion project — which is expected to start within second-quarter 2020 — will add 80,000 BPD of pipeline capacity, thereby providing additional naphtha transportation capacity from the Sweeny fractionators. Moreover, at the Pasadena Terminal, product storage capacity will rise by 300,000 barrels.
The Clemens Caverns storage capacity expansion from 9 million barrels to 16.5 million barrels is expected to be completed in fourth-quarter 2020. The C2G Pipeline is a 16-inch ethane pipeline that will connect Clemens Caverns to petrochemical facilities in Gregory, TX, near Corpus Christi. The unit is likely to commence operations by mid-2021.
The partnership will defer the Liberty Pipeline project and postpone FID on the ACE Pipeline project. It expects second-quarter adjusted EBITDA to be lower than the first-quarter reported level of $321 million due to reduced domestic production and refinery utilization. Notably, the potential earnings growth from Gray Oak will likely be offset by lower quarterly throughput.
For full-year 2020, the partnership expects capital expenditure to be $863 million, of which $731 million will be used for growth purposes and $132 million for maintenance.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -9.64% due to these changes.
At this time, Phillips 66 Partners LP has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren’t focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Phillips 66 Partners LP has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.