January 31, 2020 / 12:19 PM / in 6 months

Refiner Phillips 66 misses profit estimates on higher shutdowns

(Reuters) - U.S. refiner Phillips 66 missed analysts’ estimates for quarterly profit on Friday, hit by lower margins and higher turnaround activity at its refineries.

FILE PHOTO: The Phillips 66 gas station in Superior, Colorado, U.S., July 27, 2017. REUTERS/Rick Wilking

Turnarounds, which are planned capital projects, are a core part of the refining business and help prevent unexpected shutdowns and accidents.

The company said adjusted earnings at its refining segment plunged nearly 83% to $345 million in the quarter, as the refiner’s crack spread, or the difference between the price of crude oil and finished products, fell in the quarter.

U.S. refiners have been facing challenges to obtain low-cost heavy crude as prices have been hit by production cuts from Canada’s Alberta province, the Organization of Petroleum Exporting Countries and U.S. sanctions on Venezuela and Iran.

Adjusted earnings fell to $689 million, or $1.54 per share, in the quarter ended Dec. 31, from $2.26 billion, or $4.87 per share, a year earlier.

Analysts on average had expected profit of $1.56 per share, according to IBES data from Refinitiv.

Phillips’ stock ended down 5.2% at $91.37 on the New York Stock Exchange.

Jeffrey Dietert, vice president of investor relations, said the expense for overhauls climbed in fourth quarter.

“The turnaround expense, $232 million, was more than our guidance and up substantially from the $120 million in the third quarter,” Dietert said.

Turnarounds will also cut production at the company’s refineries in first quarter of 2020, Chief Financial Officer Kevin Mitchell told a conference call.

Production will average 90% of the combined 1.7-million-barrel-per-day capacity of the company’s seven refineries in the first quarter, Mitchell said.

In fourth quarter, the company’s refineries and chemical plants ran at an average 97% of capacity, Chief Executive Greg Garland said. For the year, its refineries ran at 94% capacity.

Planned upgrades of gasoline-producing units at refineries in Oklahoma and Texas will contribute to reduced throughput at the company’s refineries in the first quarter.

Reporting by Shradha Singh in Bengaluru, additional reporting by Erwin Seba; Editing by Amy Caren Daniel and Dan Grebler

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