Profit from processing and selling natural gas liquids, like propane and ethane, didn't grow as much as expected after gains in recent quarters, said Rob Desai, an analyst for Edward Jones in St. Louis who rates the shares a hold and doesn't own them. Coupled with lower earnings on diesel sales, the results fell short of expectations built on recent quarterly results, he said in a phone interview.
Prices for natural gas liquids sold by Phillips 66's DCP Midstream joint venture with Spectra Energy fell 12 percent from the first quarter. Earnings from the natural gas liquids division dropped by almost two-thirds.
The chemicals unit had record earnings for the quarter, rising 79 percent to $324 million and accounting for more than a third of profit. Earnings from the company's branded gasoline stations and lubricants business dropped by more than half to $162 million from $344 million a year earlier.
Exports of refined petroleum products increased 30 percent to 181,000 barrels a day from 139,000 barrels in the first quarter.
Phillips 66 plans to spend $12 billion on growth in the next three years, 90 percent of which will be on its chemical and midstream businesses as the company sees North American natural gas prices remaining low.
Changes in the ability to export oil could increase domestic crude prices, reducing the advantage for U.S. refiners paying less for oil than the international benchmark. News in June that the U.S. Commerce Department had relaxed its stance on the export of lightly processed oil sparked a sell off in refiner stocks, with Phillips 66 falling 4.2 percent on June 25. The shares have yet to recover from the decline.
"We believe the uplift between domestic crude prices and global product prices will not be as durable or as long-lived as the uplift that exists between North America natural gas or natural gas liquids and global crude prices, which is what our midstream business or our chemicals business operate on," Clayton Reasor, senior vice president of Phillips 66, said in a May 21 speech.
Phillips 66 was spun off from ConocoPhillips in 2012 and last year sold units in a pipeline partnership that now has a market value of $5 billion.