Phillips 66 surges after earnings beat and $2bn debt reduction
Refiner delivers record operational metrics as activist Elliott Management continues pressure for strategic review
Phillips 66 shares jumped more than 4% on Wednesday after the energy company reported stronger-than-expected fourth-quarter earnings and achieved a significant reduction in debt, defying analyst concerns about the impact of its Los Angeles refinery closure.
The Houston-based refiner reported adjusted earnings of $1.0 billion, or $2.47 per share, for the final quarter of 2025, comfortably beating analyst estimates of $2.14 per share. The performance included $239 million in pre-tax accelerated depreciation related to the Los Angeles Refinery closure, a one-time charge that had tempered expectations ahead of the release.
Revenue reached $34.1 billion, up 5.1% from the prior year and exceeding consensus estimates, as the company delivered a series of operational milestones. Phillips 66 achieved record natural gas liquids transportation and fractionation volumes, both exceeding 1 million barrels per day, while operating at 99% crude capacity utilization and delivering a record clean product yield of 88%.
Perhaps most notably for investors focused on the company's balance sheet, Phillips 66 reduced its debt by $2.0 billion during the quarter, bringing total debt to $19.7 billion. The leverage improvement comes amid ongoing pressure from activist investor Elliott Management, which has called for a strategic overhaul including the potential sale or spin-off of the company's midstream business—a move Elliott estimates could unlock approximately $40 billion in shareholder value.
"We delivered strong operating performance in the fourth quarter with record NGL volumes, record clean product yield and high crude utilization," said Mark Lashier, chairman and CEO of Phillips 66. "We enhanced our portfolio through acquisitions and dispositions, reduced debt and returned significant cash to shareholders."
For the full year 2025, Phillips 66 reported earnings of $4.4 billion, or $10.79 per share, with adjusted earnings of $2.6 billion, or $6.44 per share. The company generated $5.0 billion of net operating cash flow and returned $3.1 billion to shareholders, representing more than 50% of net operating cash flow.
The operational achievements come during a period of strategic portfolio transformation. Phillips 66 acquired the remaining 50% interest in WRB Refining LP, gaining full ownership of the Wood River and Borger refineries, while simultaneously selling a 65% interest in its Germany and Austria retail marketing business. The company also ceased fuel production at the Los Angeles Refinery and, in January 2026, announced an agreement to acquire the Lindsey Oil Refinery and logistics assets to enhance its U.K. integrated business.
The company announced a 2026 capital budget of $2.4 billion, with $1.1 billion allocated for sustaining capital and $1.3 billion for organic growth capital, focused on its natural gas liquids value chain and high-return refining projects.
Analysts maintain a cautious outlook on the stock despite the strong quarter. The consensus rating among analysts is "hold," with a median price target of $151.00, according to MarketBeat data. Individual targets range from $133 to $175, with the current share price around $153.48.
Elliott Management's campaign, which began in February 2025, has already secured two board seats after the hedge fund nominated four independent director candidates. The activist has criticized Phillips 66's conglomerate structure, arguing it impedes operational efficiency and obscures the true value of its assets. A March 2025 survey commissioned by Elliott revealed broader shareholder dissatisfaction with operational execution, CEO effectiveness, and capital allocation.
The earnings beat demonstrates the company's ability to execute on operational improvements even while navigating complex portfolio transitions. Investors will be watching closely for signals on whether management intends to further engage with Elliott's proposals for a midstream separation, or whether the strong balance sheet improvement will be used to support additional shareholder returns through dividends or buybacks.