Phillips 66 Trails Its 50% Cash-Return Pledge — CFO Says Cash Is Piling Up Faster Than Buybacks
The refiner returned 40% of operating cash flow through the third quarter, and its CFO says the fourth quarter must top 50% to hit the year's goal.
Phillips 66, the refiner and pipeline operator, has fallen behind its pledge to return 50% of operating cash flow to shareholders, Chief Financial Officer Kevin Mitchell said on the company's earnings call Wednesday. The company has been "struggling to keep up with the growth in the cash generation," he said, with $18.5 billion of total debt at quarter-end.
Catching up in the fourth quarter
Mitchell told analysts the company had returned 33% of operating cash flow through buybacks and dividends by the end of the second quarter. The cumulative figure reached 40% through the third quarter, and the third quarter alone came in at 45%.
That leaves the fourth quarter above 50% as the requirement for the full year to reach the target. "We believe that's very doable," Mitchell said. CEO Mark Lashier said on the call that the company is building cash on its balance sheet as it tries to keep up with the commitment.
Asked by a TD Cowen analyst whether all excess cash now flows to buybacks, Mitchell said he does not think "everything goes directly into the buyback," especially in periods of very high cash generation. The company would rather keep some flexibility, he said, though going above 50% is "very realistic."
Debt target and collateral
Mitchell said the company reduced debt by $2 billion in the quarter, paying off the remaining March 2027 term loan and buying debt on the open market, about $800 million of it. Net debt was $12.7 billion. A $500 million bond maturity was repaid on October 1, leaving balance-sheet debt at about $18 billion against a $17 billion target, with $1.25 billion maturing in 2027.
Responding to a Piper Sandler analyst, Mitchell said the company ended the quarter with about $700 million of collateral posted, well below the first quarter. Letters of credit in place of cash saved about $400 million. He warned that unpaid income taxes accrued on high profits will probably be a working-capital headwind in the fourth quarter.
Third-quarter reported and adjusted earnings were $5.6 billion, or $14.08 per share, with operating cash flow of $7.3 billion. The company raised its dividend for a second time in 2026, a 10.8% increase from the fourth quarter of 2025.
Acquisitions and a Western Gateway bill
Asked by a Morgan Stanley analyst about acquisitions, Lashier said valuations "seem to be increasing across the board" and that abundant cash will not drive the company to do anything radical.
Phillips 66 refines crude, moves and processes oil and gas, and makes chemicals through its 50% stake in Chevron Phillips Chemical. Mitchell said its share of the Western Gateway pipeline project is $2.5 billion, with 2028 the heaviest spending year and more detail due with the December capital budget.
Refining chief Rich Harbison retires at the end of the year, with Chris Chandler set to take over refining at the beginning of 2027.
Sources
- Phillips 66 beats estimates on strong refining margins — Yahoo Finance
- Phillips 66 Non-GAAP EPS of $14.08 beats by $2.29, revenue of $51.5B beats by $8.27B (PSX:NYSE) — seekingalpha.com
- What Analyst Projections for Key Metrics Reveal About Phillips 66 (PSX) Q3 Earnings — Yahoo Finance
- Here's How PSX's Flexible Crude Slate Supports Its Refining Economics — Yahoo Finance
- Phillips 66 Q3 preview: Can record refining results keep PSX’s rally alive? (PSX:NYSE) | Seeking Alpha — seekingalpha.com
