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Phillips 66 may allocate more cash to investors following US tax reform

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Phillips 66 may allocate more cash to investors following US tax reform

U.S. tax reform could allow Phillips 66 to return more money to its investors, according to company executives.

"Fundamental to our strategy are shareholder distributions, consisting of a competitive, secure and growing dividend complemented with share repurchases," Phillips 66 CEO Greg Garland said during a Feb. 2 earnings call. "As long as we trade to low intrinsic value, we're buyers of our shares."

For the fourth quarter of 2017, the company reported $3.20 billion in earnings, buoyed by a tax benefit of $2.7 billion stemming from the U.S. Tax Cut and Jobs Act that President Trump signed into law in late 2017.

Phillips 66 CFO Greg Mitchell said that looking ahead, the company would benefit from the law's lower tax rate as well as its capital cost recovery positions, and that the law would provide "flexibility" for the company's global cash management.

The refiner started 2017 with a $2.7 billion cash balance and ended the year with $3.1 billion in cash.

Mitchell said the new tax law gives the company access to between $1 billion and $1.2 billion in overseas cash, but didn't express an eagerness to repatriate it: "In reality, we have plenty of cash anyway so it's not like we need to rush out for that."

Over the last five years, Garland said the company's capital allocation plan was 60% geared toward capital investment and 40% toward returning cash to shareholders.

"We've got new income coming on from all these investments we've been making. Mid-cycle, that's $1-ish billion to $1.5 billion. We've got a nice tailwind probably from tax reform. And then we think about the investment opportunity universe, it's really competitive out there so I certainly don't see us increasing capital expenditures," Garland said. "We're going probably to drift more towards a 50-50 number certainly in 2018, 2019 is what it looks like to us. So, we'll certainly be right towards the high end of that range ... whether or not we go over it, we'll just see how the year goes."

The company outlined $2.3 billion of capital expenditures in 2018, of which the company would invest $1.4 billion in growth and $900 million in sustaining capital.

Turning to results, the company reported adjusted earnings of $548 million, or $1.07 per share, beating the S&P Capital IQ consensus normalized estimate of 86 cents per share.

For the quarter, the company reported $358 million in adjusted earnings for its refining segment versus a year-ago loss of $95 million. The company reported a global utilization rate of 100%, up from 93% in the third quarter of 2017. However, the company said a decline in gasoline market crack spreads and higher turnaround costs were partially offset by improved clean product differentials and higher volumes to bring per-barrel refining margins to $8.98, down from $10.49 in the prior quarter.

Midstream segment adjusted earnings more than doubled to $142 million from $69 million in the year-ago quarter, while the chemicals and marketing-and-specialties segments saw adjusted earnings decline to $121 million and $124 million, respectively, from $124 million and $140 million.

For 2017, the company reported adjusted earnings of $2.27 billion, up from 2016 earnings of $1.50 billion. 2017 unadjusted earnings, which include the $2.7 billion tax benefit, were $5.11 billion, up from the 2016 level of $1.56 billion.

As of 3:22 p.m. ET on Feb. 2, company shares were trading at $96.60 on the New York Stock Exchange, down 4.2% on the day.