Phillips 66 (NYSE:PSX)

The period under review demonstrates a consistent pattern of negative economic profit. While net operating profit after taxes (NOPAT) increased over the five years, it has not been sufficient to overcome the cost of capital applied to the invested capital base.

NOPAT Trend

Net operating profit after taxes exhibited an upward trend, increasing from US$3,281 million in 2015 to US$5,344 million in 2019. The largest year-over-year increase occurred between 2015 and 2016, with a gain of US$1,199 million. Subsequent increases were more moderate.

Cost of Capital Trend

The cost of capital fluctuated modestly between 2015 and 2018, ranging from 15.00% to 15.49%. A decrease to 14.49% was observed in 2019, representing the lowest value within the observed period. Despite this decrease, the cost of capital remained substantial.

Invested Capital Trend

Invested capital generally increased throughout the period, rising from US$42,469 million in 2015 to US$50,827 million in 2019. A slight decrease was noted between 2017 and 2018, from US$49,009 million to US$48,544 million, before resuming its upward trajectory.

Economic Profit Trend

Economic profit remained negative throughout the five-year period, ranging from -US$2,024 million to -US$3,296 million. The magnitude of the economic loss decreased over time, moving from -US$3,296 million in 2015 to -US$2,024 million in 2019. This reduction in the economic loss correlates with the increase in NOPAT and the slight decrease in the cost of capital in the final year.

In summary, while operational profitability improved, the returns generated were consistently below the required rate of return on invested capital, resulting in a persistent economic loss. The narrowing of this loss in 2019 suggests a potential positive trend, but continued monitoring is warranted to determine if this improvement is sustainable.

The financial data reveals distinct trends in net income and net operating profit after taxes (NOPAT) over the five-year period.

Net Income Attributable to Phillips 66

Net income experienced significant volatility throughout the period. Starting at US$4,227 million in 2015, net income decreased sharply to US$1,555 million in 2016, representing a notable decline. However, in the following years, net income rebounded strongly, rising to US$5,106 million in 2017 and further increasing to US$5,595 million in 2018. In 2019, net income declined again to US$3,076 million. This pattern indicates fluctuating profitability with considerable short-term variations.

Net Operating Profit After Taxes (NOPAT)

NOPAT shows a more consistent upward trend over the same period. Beginning at US$3,281 million in 2015, NOPAT increased steadily to US$4,480 million in 2016, US$4,664 million in 2017, US$5,129 million in 2018, and finally US$5,344 million in 2019. This gradual growth suggests improving core operational efficiency and profitability despite the fluctuations in net income.

In summary, while net income experienced notable fluctuations, particularly with a steep drop in 2016 followed by a peak in 2018, NOPAT demonstrated a steady and gradual improvement throughout the period. This contrast may indicate effects from non-operational factors influencing net income, whereas operating performance exhibited consistent enhancement.

The financial data reveals considerable fluctuations in both income tax expense (benefit) and cash operating taxes over the five-year period.

Income Tax Expense (Benefit)

There is a notable volatility in income tax expense figures, beginning with a high expense of 1,764 million USD in 2015, dropping sharply to 547 million USD in 2016. In 2017, the data shows a significant income tax benefit reflected by a negative value of -1,693 million USD. This is followed by a rebound to a positive expense of 1,572 million USD in 2018, before declining again to 801 million USD in 2019. This pattern indicates substantial variability, which could be due to changes in taxable income, tax rate adjustments, or extraordinary tax items within the company’s operational framework.

Cash Operating Taxes

The cash operating taxes also display considerable variation. The taxes paid almost drop from 1,407 million USD in 2015 to just 70 million USD in 2016, then rise to 363 million USD in 2017. A sharp increase occurs in 2018 to 1,429 million USD, followed by a decrease to 716 million USD in 2019. This trend, although somewhat aligned with the income tax expense, suggests fluctuating cash outflows related to tax operations, potentially reflecting changes in operational profitability, deferred tax payments, or differences between cash and accounting tax treatments.

Overall, the data suggests a highly dynamic tax position with considerable year-to-year changes. The negative income tax figure in 2017 particularly stands out as an anomaly, indicating either a tax benefit or adjustment that significantly reduced the tax expense for that year. The disparity between cash operating taxes and income tax expense in some years also implies timing differences between recorded tax expense and actual tax payments.

Total reported debt & leases

The total reported debt and leases show a continuous upward trend from 2015 through 2019. The value increased steadily each year from $10,643 million in 2015 to $13,024 million in 2019, indicating a rise in the company’s financial obligations over the period.

Stockholders’ equity

Stockholders' equity experienced fluctuations during the period. It decreased slightly from $23,100 million in 2015 to $22,390 million in 2016, then increased to a peak of $25,085 million in 2017. This was followed by a marginal decline in 2018 and a minor recovery in 2019, ending at $24,910 million. Overall, equity remained relatively stable with modest variations.

Invested capital

Invested capital showed a consistent growth trend over the five years. Beginning at $42,469 million in 2015, it rose each year and reached $50,827 million in 2019. This increase suggests ongoing capital investment and expansion activities.

The period between 2015 and 2019 demonstrates a consistent pattern of negative economic profit, alongside increasing invested capital. This results in a negative economic spread ratio throughout the observed timeframe, though with a notable trend towards improvement.

Economic Profit

Economic profit consistently registers as negative across all five years. The magnitude of the loss decreased from US$3,296 million in 2015 to US$2,024 million in 2019. While still representing a loss, the reduction in the absolute value of the economic profit suggests improving performance relative to the cost of capital.

Invested Capital

Invested capital exhibits a general upward trend, increasing from US$42,469 million in 2015 to US$50,827 million in 2019. This indicates a continued investment in the business, despite the negative economic profit. The increase is not strictly linear, with a slight decrease observed between 2017 and 2018.

Economic Spread Ratio

The economic spread ratio, expressed as a percentage, is negative for each year, confirming that returns are not exceeding the cost of capital. However, the ratio demonstrates a clear improving trend, moving from -7.76% in 2015 to -3.98% in 2019. This improvement aligns with the decreasing magnitude of the economic profit loss, indicating a narrowing gap between returns and the cost of capital. The largest single-year improvement occurred between 2018 and 2019.

In summary, while the entity consistently experienced negative economic profit during this period, the trend suggests a gradual improvement in financial performance relative to its cost of capital. The increasing invested capital, coupled with the improving economic spread ratio, warrants further investigation to understand the drivers behind these trends and their potential sustainability.

The period between 2015 and 2019 demonstrates a consistent pattern of negative economic profit, although the magnitude of the loss decreased over time. Simultaneously, sales and other operating revenues exhibited fluctuations, impacting the economic profit margin.

Economic Profit

Economic profit remained negative throughout the analyzed period, ranging from a loss of US$3,296 million in 2015 to a loss of US$2,024 million in 2019. The largest decrease in the loss occurred between 2016 and 2017, followed by a more moderate reduction between 2018 and 2019. This suggests improving, but still insufficient, value creation relative to the cost of capital.

Sales and Other Operating Revenues

Sales experienced a decline from US$98,975 million in 2015 to US$84,279 million in 2016. Revenues then increased significantly to US$102,354 million in 2017, peaking at US$111,461 million in 2018 before decreasing slightly to US$107,293 million in 2019. These revenue fluctuations likely influenced the economic profit figures.

Economic Profit Margin

The economic profit margin consistently registered as negative, mirroring the negative economic profit. The margin improved from -3.33% in 2015 to -1.89% in 2019. This improvement aligns with the decreasing magnitude of the economic profit losses. The largest improvement in the margin occurred between 2015 and 2016, and again between 2017 and 2018, coinciding with periods of revenue change and economic profit reduction. The trend indicates a gradual increase in profitability relative to capital employed, but continued underperformance against the cost of capital.

Overall, the analysis reveals a trend of diminishing economic losses alongside fluctuating revenues. While the economic profit margin improved over the five-year period, the company did not generate positive economic profit during this time.