Petron Corp. sold more fuel at higher prices in the first quarter. The trouble was that every peso of sales bought shareholders less profit.
The Philippines’ largest oil company reported a 27% jump in first-quarter revenue to ₱246.0 billion, boosted by higher sales volume and surging fuel prices after the Israel-U.S.-Iran conflict roiled global oil markets. Sales volume rose 13% to 34.62 million barrels, helped by stronger trading transactions, resilient retail demand and LPG growth. But the top-line strength masked a sharp deterioration underneath: gross profit fell 22% to ₱10.52 billion, operating income dropped 36% to ₱6.06 billion, and consolidated net income slumped 56% to ₱1.78 billion.
The result was a quarter that looked big in nominal terms but thin in economic substance. Petron sold more and sold at higher prices, yet earned materially less per peso of sales. Its gross margin narrowed to 4.3% from 6.9% a year earlier, a decline of about 266 basis points, as cost of goods sold rose 30.2%, outpacing revenue growth of 26.6%. The company’s cost of goods sold reached ₱235.5 billion, compared with ₱180.9 billion a year earlier, overwhelming the benefit of higher volumes and higher pump-price-linked sales.
The culprit was not weak demand. It was the cost of supplying that demand.
Petron said international oil prices remained under pressure from geopolitical risks, changing supply dynamics and uneven demand recovery. By the end of February, coordinated U.S.-Israel strikes against Iran had escalated into a direct conflict, disrupting crude and petroleum product flows from the Middle East. At the same time, Petron’s output was constrained by scheduled maintenance at its Bataan refinery and the shutdown of the Port Dickson Refinery in Malaysia, following damage to its jetty during Tropical Storm Senyar in November 2025. Those combined pressures pushed product costs higher and hurt refining margins.
Benchmark Dubai crude, according to Petron, averaged US$86 per barrel during the quarter, 12% higher than a year earlier, and surged to US$129 per barrel in March, almost double its February level. The company specifically cited the closure of the Strait of Hormuz — a critical route for roughly a fifth of global oil supply — and attacks on oil and energy infrastructure as drivers of the price shock.
That left Petron in a familiar refiner’s squeeze: revenue rose because prices rose, but margins compressed because feedstock and product costs rose faster. Gross margin fell to 4.3%, operating margin slid to 2.5% from 4.9%, and net margin dropped to just 0.7% from 2.1%. Put differently, Petron generated ₱246 billion of sales but kept less than ₱2 billion as bottom-line profit.
The shock was even more visible on the balance sheet.
Petron’s consolidated assets expanded by ₱137.1 billion, or 30%, in just three months, reaching ₱589.1 billion at end-March from ₱452.0 billion at end-2025. The main driver was inventories, which more than doubled to ₱161.8 billion from ₱67.5 billion. Management attributed the increase to higher volumes and higher average prices of crude and finished products.
But the inventory build was not funded by a comparable rise in equity. Suppliers and counterparties carried much of the burden. Liabilities for crude oil and petroleum products surged 176% to ₱142.0 billion from ₱51.4 billion, while trade and other payables doubled to ₱66.4 billion from ₱33.0 billion. In effect, Petron’s balance sheet ballooned because the oil-price shock inflated both barrels on hand and the bills attached to those barrels.
Cash, at first glance, improved. Petron ended March with ₱57.1 billion in cash and cash equivalents, up 36% from ₱42.1 billion at the start of the year. Operating activities still generated ₱18.9 billion of net cash, though this was lower than the ₱24.5 billion generated a year earlier.
Yet liquidity weakened despite the higher cash pile. Current assets rose, but current liabilities rose faster. Petron’s current ratio slipped to 1.12x from 1.23x at end-2025, while its quick ratio fell to 0.51x from 0.64x. That means more of Petron’s near-term financial cushion now sits in inventory — useful if prices hold and barrels move, but less comforting if prices reverse or working-capital demands intensify.
Leverage optics also worsened. Total liabilities climbed to ₱467.2 billion from ₱330.9 billion, while equity was little changed at ₱121.9 billion. Petron’s broad debt-to-equity ratio rose to 3.8x from 2.7x, and its assets-to-equity ratio increased to 4.8x from 3.7x. Interest-bearing debt did not explode — short-term loans edged up only 2% to ₱93.7 billion, and long-term debt was broadly stable — but the surge in payables, crude obligations and derivative liabilities made the company look more leveraged.
The foreign-exchange picture added another layer of pressure. The peso weakened to ₱60.748 per dollar at end-March from ₱58.790 at end-2025. Petron’s net foreign-currency-denominated monetary liabilities widened sharply to ₱147.4 billion from ₱54.0 billion, and the company recorded net foreign exchange losses of ₱2.58 billion in the quarter, compared with gains of ₱931 million a year earlier.
Petron’s hedging program softened parts of the blow but also made volatility more visible. Financial assets at fair value jumped to ₱12.86 billion from ₱1.08 billion, while derivative liabilities increased to ₱11.18 billion from ₱1.72 billion, reflecting larger commodity and currency hedging balances. Outstanding foreign currency forward contracts rose to US$1.79 billion from US$1.32 billion at end-2025.
For common shareholders, the squeeze was starker than consolidated profit suggests. Net income attributable to parent shareholders was ₱1.91 billion, but after preferred dividends and distributions to capital securities, net income attributable to common shareholders was negative ₱200 million. Basic and diluted earnings per common share came in at negative ₱0.02, compared with ₱0.39 a year earlier.
That is the uncomfortable story of Petron’s first quarter: scale increased, but common equity economics deteriorated. The company moved more barrels through the system, booked higher peso sales, and carried more inventory. But higher costs, refinery constraints, FX losses, working-capital inflation and senior claims on earnings left common shareholders with little to capture.
Petron said it remains focused on supply-chain reliability, diversifying crude and product sourcing, optimizing inventory levels, and managing costs while monitoring the still-evolving impact of the conflict. The company also said it remained compliant with financial covenants and maintained headroom under existing debt facilities as of the reporting date.
The next few quarters will show whether Q1 was a temporary war-price distortion or the start of a more difficult margin regime. For now, Petron’s first-quarter numbers delivered a clear message: in an oil shock, bigger sales do not necessarily mean better earnings — and for common shareholders, they may not mean earnings at all.
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Disclaimer: This is for informational purposes and is not investment advice. Figures are taken from company disclosures and exchange data; valuation ratios include the author’s calculations based on cited inputs.
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