PHILLIPS 66 2026 Q2 Earnings Call

Thank you, Shaun. This quarter's operating results reflect the dedication and work that our teams have delivered throughout the company's transformation over these past several years. Our system is operating well. Our assets are well-positioned, and the market environment is constructive. While there's more work to do, we believe our organization's earning power is becoming clearer as we continue to drive execution and return capital to shareholders. Safety, reliability, and operational excellence remain at the center of everything we do. We recently earned industry recognition for exemplary safety performance in midstream, refining, and chemicals. Due to our steadfast focus on reliability, our integrated businesses are available to supply U.S. and global energy needs. At Phillips 66, operational excellence is foundational. We remain focused on disciplined execution and continuous improvement. Our midstream business continues to execute on its growth plan as expected.

Over the past two years, we've increased fractionation capacity to over one million barrels per day and achieved greater than 100% average frac utilization. During the quarter, we also achieved record LPG export volumes. Our complete wellhead-to-market system allows us to move products across our integrated value chain and offers customers valuable optionality and global access. In refining, our deliberate focus on operational improvement continues to deliver results. We have enhanced the portfolio, increased clean product yield, improved our cost structure, led the industry in utilization, and increased our nameplate capacity. Supported by a strong contribution from our commercial organization, we captured 98% of our market indicator in the second quarter. In renewables, we have scale, flexibility, and strong operations at one of the largest renewable diesel facilities in the world.

As the uncertainty over renewable credit regulations unfolded in 2025, we engaged constructively with state and federal regulators and continue to do so. We also focused on taking costs out of the system and improving reliability and flexibility. To that end, we ran above nameplate capacity during the quarter. In chemicals, our industry-leading position is clear. These are advantaged assets positioned at the low end of the feedstock cost curve. Across all of our businesses, we continue to raise the bar. Make no mistake, we must compete every day. Our teams continue to find new ways to maximize value through improving operations, increasing yields, expanding margins, and lowering costs. Moving to Slide 4. We process low-cost hydrocarbons from the U.S., Canada, and Latin America and turn them into higher value, usable products for customers.

As global supply and demand dynamics become more complex, our integrated model positions us for long-term value creation. We are investing for the next decade, not just the next quarter. The midstream and marketing and specialties businesses deliver reliable cash flows while refining, chemicals, and renewables generate attractive incremental returns with commodity upside. We've built an integrated North America infrastructure system. We'll continue to focus on being the best in every segment of our portfolio, all while maximizing shareholder returns. That's what makes Phillips 66 unique. We have a resilient business model, advantaged assets, strong commercial capabilities, and significant earnings potential. Now I'll turn the call over to Kevin as we move to Slide five.

Thank you, Mark. Last year, we committed to reduce total debt to $17 billion by year-end 2027, to return greater than 50% of net operating cash flow, excluding working capital, to shareholders. Our focus on these priorities has not wavered, and we expect to deliver on our debt commitment ahead of schedule. In the second quarter, we made significant progress on strengthening the balance sheet. We ended the quarter with total debt of $20.6 billion and net debt of $16.5 billion. This positions us better than where we started the year and using current consensus estimates, we expect net debt to be less than $16 billion by the end of this year.

We expect to achieve our debt target while also returning greater than 50% of net operating cash flow to shareholders through dividends and share repurchases. This is a core strategic priority, and we expect to increase share repurchases in the second half of this year. Our disciplined capital allocation framework allows us to enhance our shareholder value proposition. We remain committed to a secure, competitive, and growing dividend, to creating value for our stakeholders through disciplined capital investment, dividends, share repurchases, and debt reduction. On Slide six, second quarter reported and adjusted earnings were $3.8 billion. Reported and adjusted earnings per share were $9.55 and $9.41 respectively. The company's second quarter financial results were impacted by mark-to-market gains of approximately 50% of the first quarter mark-to-market losses. Operating cash flow excluding working capital was $4.3 billion. Capital spending for the quarter was $726 million.

We returned $887 million to shareholders, including $379 million of share repurchases and $508 million of dividend payments. I will now cover the segment results on Slide seven. Total company adjusted earnings were $3.8 billion. Midstream results increased mainly due to higher margins as well as higher volumes, largely driven by the absence of last quarter's Winter Storm Fern impacts. In Chemicals, results increased mainly due to higher polyethylene margins driven by higher sales prices. Refining results increased mainly due to higher realized margins driven by an increase in market crack spreads. Marketing and Specialties results increased mainly due to higher global marketing margins. In Renewable Fuels, results increased mainly due to higher regulatory credits from higher pricing and renewable fuels production. Also included in the results are approximately $450 million of favorable mark-to-market impacts in the Refining, Marketing and Specialties, and Renewable Fuels segments.

In Corporate and Other, the pre-tax loss decreased primarily due to lower net interest expense and employee-related costs. Slide eight shows cash flow for the quarter. We started the quarter with a $5.2 billion cash balance. Cash from operations excluding working capital was $4.3 billion. There was a $2.9 billion working capital benefit due to a reduction in inventory as well as the timing of tax payments. Total debt reduced significantly during the quarter as we paid off all outstanding commercial paper and repaid $1 billion of the March 2027 term loan. The remaining $1.25 billion balance on the term loan was paid off in July. We ended the quarter with $4.1 billion in cash and $6.4 billion in committed capacity, giving us total committed liquidity of $10.5 billion. Looking ahead to the third quarter on Slide nine.

In Chemicals, we expect the global O&P utilization rate to be in the low 90s. In Refining, we expect the worldwide crude utilization rate to be in the mid-90s. Turnaround expense is expected to be between $100 million and $120 million. We anticipate Corporate and Other costs to be between $325 million and $350 million. Moving to Slide 10, Mark will now provide some final thoughts. We will then open the line for questions.

Volatility in the first half of the year created both challenges and opportunities. Our team was prepared, agile, and focused on execution. This enabled us to navigate the market and capture value through strong Refining performance, disciplined Midstream growth, and flexible, opportunistic commercial execution across our portfolio. Looking ahead, the macro environment remains constructive. We're focused on continuous operating improvement, and our people are helping drive that progress as they leverage the advantages of our asset footprint. In any market, including this one, we will continue to maintain capital discipline and stay focused on the balance sheet while pursuing meaningful opportunities to drive long-term value. Our integrated model, together with our employees, provides resilience and opportunity, positioning us to manage through volatility and capture the benefits of a strengthening macro environment for shareholders.