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Marathon (MPC) Q3 Earnings Top Despite a Decline in Margins

Independent oil refiner and marketer Marathon Petroleum Corporation MPC reported third-quarter adjusted earnings per share of $8.14, which comfortably beat the Zacks Consensus Estimate of $7.79 and came ahead of the year-ago adjusted profit of $7.81. The outperformance primarily reflects lower costs and expenses, which offset the effect of a drop in refining margin.

Marathon Petroleum reported revenues of $41.6 billion, which beat the Zacks Consensus Estimate of $35.3 billion but declined 12% year over year due to a dip in throughput and capacity utilization.

In an important development for investors, MPC’s board of directors declared a quarterly cash dividend of 82.50 cents per share to its common shareholders of record on Nov 16. The payout, which represents a 10% sequential increase, will be made on Dec 11.

Marathon Petroleum Corporation Price, Consensus and EPS Surprise

Marathon Petroleum Corporation Price, Consensus and EPS Surprise
Marathon Petroleum Corporation Price, Consensus and EPS Surprise

Marathon Petroleum Corporation price-consensus-eps-surprise-chart | Marathon Petroleum Corporation Quote

Inside MPC’s Segments

Refining & Marketing: The Refining & Marketing segment reported an operating income of $3.8 billion, which fell 18.8% from the year-ago profit of $4.6 billion. The decline primarily reflects lower year-over-year margins and a decrease in capacity utilization.

Specifically, the refining margin of $26.16 per barrel declined from $30.21 a year ago and came below our estimate of $31.33. Capacity utilization during the quarter was 94%, down from 98% in the corresponding period of 2022. We expected the metric to be 94.2%.

Meanwhile, total refined product sales volumes were 3,596 thousand barrels per day (mbpd), up from 3,587 mbpd in the year-ago quarter and our estimate of 3,574.6 mbpd. However, throughput fell from 3,007 mbpd in the year-ago quarter to 2,959 mbpd but outperformed our estimate of 2,930 mbpd.

MPC’s operating costs per barrel dropped from $5.63 in the year-ago quarter to $5.14. The company managed to rein in expenses due to lower energy outgo. Our estimates factored in a slightly lower unit cost of $5.10.

Midstream: This unit mainly reflects Marathon Petroleum’s general partner and majority limited partner interests in MPLX LP — a publicly traded master limited partnership that owns, operates, develops and acquires pipelines and other midstream assets.

Segment profitability was $1.1 billion, down 3.4% from the third quarter of 2022. Earnings were adversely affected by lower natural gas liquids prices.

 

Financial Analysis

Marathon Petroleum, carrying a Zacks Rank #2 (Buy), reported expenses of $36.8 billion in third-quarter 2023, falling 9.2% from the year-ago quarter but surpassing our projection of $28.9 billion.

You can see the complete list of today’s Zacks #1 Rank stocks here.

In the reported quarter, Marathon Petroleum spent $522 million on capital programs (49% on Refining & Marketing and 45% on the Midstream segment) compared to $789 million in the year-ago period. As of Sep 30, the company had cash and cash equivalents of $8.5 billion and total debt, including that of MPLX, of $27.3 billion, with a debt-to-capitalization of 46.2%.

In the third quarter, MPC repurchased $2.8 billion of shares and a further $1 billion worth of shares in October. The company, which gave an additional $5 billion share repurchase approval, currently has a remaining authorization of $8.3 billion.

Some Key Refining Earnings

While we have discussed MPC’s third-quarter results in detail, let’s see how some other refining companies have fared this earnings season.

Phillips 66 PSX reported adjusted earnings per share of $4.63, missing the Zacks Consensus Estimate of $4.78. The underperformance can be primarily attributed to declining refining margins worldwide. This was partially offset by PSX’s lower costs.

For the reported quarter, Phillips 66 generated $2.7 billion of net cash from operations, down from $3.1 billion a year ago. PSX’s capital expenditure and investments totaled $855 million. It paid out dividends of $465 million in the reported quarter. As of Sep 30, 2023, cash and cash equivalents were $3.5 billion. Meanwhile, Phillips 66 reported a total debt of $19.4 billion, reflecting a consolidated debt to capitalization of 39%.

Meanwhile, another refining giant — Valero Energy VLO —  reported better-than-expected third-quarter earnings. EPS of $7.49 per share came in above the Zacks Consensus Estimate of $7.36. This was on account of VLO’s increased refining throughput volumes and a decline in total costs of sales.

At the end of the third quarter, VLO had cash and cash equivalents of $5.8 billion, while the company’s total debt and finance lease obligations amounted to $11.4 billion. Valero’s third-quarter capital investment was $394 million. Of the total, $303 million was allotted for sustaining the business.

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