Phillips 66’s Q1 Earnings Miss Highlights Short-Term Pain, Long-Term Promise

Phillips 66 reported first-quarter 2025 results that underscored the refining giant’s struggle with near-term operational hurdles, even as its long-term strategy shows promise. The company’s Non-GAAP EPS of -$0.90 missed estimates by $0.18, falling short of the consensus -$0.72, signaling a stark divergence between short-term execution challenges and the potential for recovery.

The Miss: A Perfect Storm of Turnarounds and One-Time Costs

The Q1 miss was no surprise. Analysts had already lowered their estimates sharply, driven by a combination of strategic refinery turnarounds and one-time costs, including a $246 million pre-tax charge tied to the Los Angeles Refinery’s accelerated depreciation. These non-recurring expenses, combined with a $162 million increase in adjusted pre-tax losses in refining due to lower volumes and higher maintenance costs, created a drag on results.

The refining segment’s struggles were particularly acute. Turnarounds—routine but costly maintenance periods—often disrupt output and margins. This quarter, Phillips 66 executed one of its largest-ever spring turnaround programs, which depressed refining volumes and margins. Meanwhile, the midstream and chemicals divisions also faced headwinds, with weaker volumes and pricing pressures.

The Bigger Picture: A Near-Term Hit, But a 2026 Turnaround in Sight?

While Q1’s results were disappointing, the earnings call highlighted management’s confidence in a recovery. The company’s wellhead-to-market strategy—focused on integrating upstream production with downstream refining and midstream infrastructure—remains intact. Key projects like the Iron Mesa gas plant in the Permian Basin and the acquisition of EPIC Y-Grade GP, LLC are positioned to stabilize cash flows and reduce reliance on volatile refining margins.

The data supports this optimism. Analysts project a 124.96% surge in 2026 EPS to $10.71, compared to $4.76 for 2025, reflecting expectations of margin improvements and reduced turnaround costs. Additionally, the company’s $716 million in dividends and buybacks in Q1—over 50% of its operating cash flow—demonstrates its commitment to shareholder returns even amid short-term pain.

Why Investors Should Look Past the Miss

The key takeaway is that Phillips 66’s Q1 miss is not a verdict on its long-term prospects, but rather a reflection of planned, albeit costly, operational moves. The refining segment’s challenges are cyclical, and the company’s strategic investments are designed to reduce its exposure to refining volatility.

Consider the numbers:
- 2026 EPS forecast: Up 125% from 2025’s $4.76, reaching $10.71.
- Dividend yield: 5.4%, with a track record of consistent payouts.
- Cash flow stability: The Iron Mesa gas plant alone could add $400 million in annual EBITDA by 2026.

Conclusion: A Stock for Patient Investors

Phillips 66’s Q1 stumble is a reminder that energy infrastructure plays like this are inherently cyclical. The near-term headwinds—turnarounds, one-time charges, and soft refining margins—are real, but they’re not irreversible. The company’s focus on strategic asset acquisitions (EPIC) and high-growth projects (Iron Mesa) positions it to capitalize on long-term trends in U.S. energy production.

For investors, the key is to avoid overreacting to the short-term noise. The stock’s 5-year average P/E ratio of 14 compared to its current P/E of 9.8 suggests it’s pricing in pessimism. If the 2026 EPS forecast materializes, the stock could see a 45% upside to its current price.

In the end, Phillips 66 isn’t a story about avoiding all pain—it’s a story about enduring it now for a stronger payoff later.