January 28, 2022
Statement of Operations
Revenue in 2021 was $111.5B. Oil prices dominate the company’s financial results. Revenue in 2020 was $47B lower and cost of crude oil and products down in Costs and Expenses was $45B lower. Both of these are drops of nearly half in one year. Operating expenses in 2021 were $5.1B. SG&A was $1.7B. D&A was $1.6B. Taxes were $400M and interest on debt was $581M. Given that oil prices dilute out all the rest of these expenses, I’m not going to examine them any more closely, except to compare D&A and CapEx when we get down to the Statement of Cash Flows. In 2021, when oil averaged around $75 per barrel, Phillips made $1.3B in profits. The year before, Covid’s coming-out year of 2020, oil was well below $50 per bbl for most of the year and Phillips lost $3.98B. In 2019, oil was around $60 and company profits were $3.08B. There are 14,000 people at Phillips working every day to run the business more efficiently and to improve the rest of the lines in the statement of operations, but oil pricing is what matters for investing in this company. That, and the price you buy the stock at relative to peers.
Statement of Cash Flows
My version of owner’s cash flow is a little different depending on the company. I seek to calculate how much cash would be available to me if I owned the whole company. In the case of Phillips 66 for the year 2021, I start with $1.594B of net income. Through operating cash flow, I follow what the company added/subtracted to arrive at cash from operations except for the following. I took out the effects of working capital because they are lumpy, and this confuses things. Only for companies in dire straits will I do something more here. With these adjustments made, owner’s cash flow is $3.898B. Capex used up $1.86B of this, more than depreciation and amortization by 15%. 2021 was a light investment year for capital spending. The previous two years were $2.9B and $3.9B. The company is growing. I followed the same adjustments the company did in Investing Activities, leaving $4.145B in cash flow me, the theoretical owner of the whole company. At a market cap of $39.69B, owner’s cash flow yield is 10.4%. Of this $4.1B management had available, they paid off a net total of $1.5B in debt, sent out another $1.6B out in dividends, and distributed about $350M to non-controlled interests.
Balance Sheet
Phillips 66 has $3.1B of cash and equivalents to go with $1.5B of short-term debt. The company has $55.6B in total assets, $22.4B of which is PP&E with another $11B in working capital assets. They also have $14.5B worth of investments and long-term receivables. The company has $8.4B in working capital liabilities and $13B of long-term debt. Adding it all up and Phillips stock is priced ($82 per share) at about 2x book value.
Summary
I’ve been holding Phillips 66 since it spun out of ConocoPhillips in 2012 and I’ve hardly looked at it. This is good since I’m losing to the market by a wide margin, though up 2x in equity value plus dividends, which amount to 75% of my initial investment in ConocoPhillips. Point is, this has been a bad investment for me, measured against the S&P500 benchmark. Even so, I’ve made multiples of my money. It is a tiny fraction of my holdings today, so I won’t sell it. Even if it were a meaningful percentage, I wouldn’t sell it. For one, I have a bias towards holding vs. selling. Second, the price of the stock is so dependent on the price of oil, I would have to have a strong feeling that oil prices are headed below $50 per bbl again to make a move. I don’t have such a feeling. Measured against the owner’s cash flow in 2021, the shares are inexpensive today. That 4.4% dividend yield is considerable.
- S. Hughes (long PSX)