Phillips 66 (NYSE:PSX)

An analysis of financial performance from 2015 to 2019 reveals a consistent growth in operational profitability, although the company failed to generate positive economic value throughout the period. While net operating profit after taxes increased steadily, the scale of invested capital and the associated cost of capital exceeded the operating returns, resulting in a sustained negative economic profit.

Net Operating Profit After Taxes (NOPAT)

A sustained upward trend is observed in NOPAT, which grew from 3,281 million US$ in 2015 to 5,344 million US$ in 2019. The most substantial increase occurred between 2015 and 2016, followed by steady annual increments, indicating an improvement in core operational efficiency.

Invested Capital and Cost of Capital

Invested capital expanded from 42,469 million US$ in 2015 to 50,827 million US$ in 2019, despite a slight contraction in 2018. During this same interval, the cost of capital remained relatively stable, fluctuating within a narrow range between 14.46% and 15.45%. The cost of capital reached its lowest point in 2019 at 14.46%.

Economic Profit Analysis

Economic profit remained negative across all five years, signifying that the return on invested capital was insufficient to cover the cost of capital. However, a trend of gradual improvement is evident, as the economic deficit narrowed from -3,280 million US$ in 2015 to -2,006 million US$ in 2019. This recovery is primarily attributable to the growth in NOPAT, which mitigated the impact of the increasing capital base and its associated charges.

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.

An analysis of the economic value metrics from 2015 to 2019 reveals a consistent pattern of negative economic profit, although a gradual trend toward recovery is evident. Despite a sustained increase in the total capital base, the deficit in economic profit has narrowed over the five-year period.

Economic Profit Trends

Economic profit remained negative throughout the analyzed period, starting at -3,280 million USD in 2015 and concluding at -2,006 million USD in 2019. While a temporary decline in performance was noted in 2017, where profit dropped to -2,765 million USD, the general trajectory indicates a reduction in the amount of value destroyed over the long term.

Invested Capital Expansion

A steady upward trend in invested capital is observed, with the figure rising from 42,469 million USD in 2015 to 50,827 million USD by 2019. This growth indicates a continuous commitment of resources to the company's operations, even as the returns on these investments remained below the cost of capital.

Economic Spread Ratio Analysis

The economic spread ratio shows a progressive improvement, moving from -7.72% in 2015 to -3.95% in 2019. The narrowing of this negative spread suggests that the gap between the return on invested capital and the cost of capital is closing, reflecting a gradual increase in capital efficiency and a trend toward positive economic value addition.

A comprehensive analysis of the economic value added metrics indicates that the company operated with a negative economic profit throughout the five-year period from 2015 to 2019. However, a consistent trend of improvement is observable, as the company steadily reduced its economic losses relative to its revenue stream.

Economic Profit Performance

Economic profit remained negative for the duration of the analyzed period, signifying that the company did not generate returns sufficient to cover its cost of capital. The absolute economic loss reached its peak in 2015 at -3,280 million USD and improved to -2,006 million USD by 2019. While there was a temporary setback in 2017, where losses increased to -2,765 million USD from -2,435 million USD in the prior year, the overall trajectory demonstrates a reduction in economic value destruction over the long term.

Revenue Fluctuations

Sales and other operating revenues exhibited volatility, decreasing from 98,975 million USD in 2015 to a low of 84,279 million USD in 2016. This was followed by a period of growth, peaking at 111,461 million USD in 2018, before a slight contraction to 107,293 million USD in 2019. These fluctuations in revenue occurred alongside the gradual improvement in economic profitability metrics.

Economic Profit Margin Analysis

The economic profit margin demonstrated a steady and uninterrupted improvement each year. Starting at -3.31% in 2015, the margin climbed consistently to -1.87% by 2019. Notably, the margin improved in 2017 despite the increase in absolute economic loss; this indicates that the significant growth in sales during that year effectively mitigated the impact of the losses on a percentage basis. This steady upward trend suggests an increase in operational efficiency and a closer alignment with the required cost of capital.