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Marathon Petroleum (MPC) Down 11.1% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Marathon Petroleum (MPC). Shares have lost about 11.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Marathon Petroleum due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Marathon Petroleum Beats Q2 Earnings

Marathon Petroleum released second-quarter 2019 results, delivering a comprehensive beat. Better-than-expected contribution from the Refining & Marketing segment led to the outperformance. Precisely, operating income from the unit came in at $906 million, surpassing the Zacks Consensus Estimate of $772 million.

The independent oil refiner and marketer reported adjusted earnings of $1.73 per share, surpassing the Zacks Consensus Estimate of $1.33. While the company turned around from the first quarter’s loss of 9 cents a share, the bottom line declined 24% y/y.

Marathon Petroleum’s revenues of $33,688 million outpaced the Zacks Consensus Estimate of $31,229 billion and improved 50% year over year.

Segmental Performance

Refining & Marketing: The Refining & Marketing segment reported operating income of $906 million, lower than $1,025 million in the year-ago quarter. The deterioration reflects narrower crude differentials, lower product realizations and softer y/y refining margins. Refining margin of $15.24 per barrel decreased from $15.40 a year ago. Capacity utilization also declined to 97% from the year-ago level of 100%. These factors more than offset the impact of higher refined product sales volume and rising throughput, following the 2018 acquisition of Andeavor.

Total refined product sales volumes were 3,814 thousand barrels per day (mbpd), up from 2,392 mbpd in the year-ago quarter. Moreover, throughput increased from 2,038 mbpd in the year-ago quarter to 3,135 mbpd, following the addition of legacy Andeavor refineries.

Retail: Income from the Retail segment totaled $493 million, up 210% from the year-ago period. In addition to strong performance at Marathon Petroleum’s former Speedway unit, the segment’s results were buoyed by contribution from the acquired retail assets of Andeavor. Across the board, the Retail segment benefited from higher fuel margins and merchandise sales. In particular, the company's retail fuel margin rose from 16.5 cents per gallon in the second quarter of 2018 to 26.7 cents in the quarter under review.

Midstream: This unit mainly reflects Marathon Petroleum’s general partner and majority limited partner interests in MPLX LP and Andeavor Logistics LP — publicly-traded master limited partnerships that own, operate, develop and acquire pipelines as well as other midstream assets.

Segment profitability was $878 million, up from $617 million in the second quarter of 2018. Earnings were buoyed by the addition of Andeavor Logistics that contributed $223 million during the quarter. The unit was further aided by strong overall growth from businesses that added $38 million to segment results.

Costs, Capex & Balance Sheet

Total costs in the quarter totaled $31,646 million, up from the year-ago expenses of $20,734 million. In the reported quarter, Marathon Petroleum spent $1.4 billion on capital programs (58% on the Midstream segment). As of Jun 30, the company had cash and cash equivalents of $1.2 billion and a total debt of $28.4 billion, with a debt-to-capitalization ratio of 39.7%. You can see the complete list of today’s Zacks #1 (Strong Buy)Rank stocks here.   

During the second quarter, Marathon Petroleum returned $852 million of capital to its shareholders, including $500 million in share buybacks.

Guidance

Refinery throughput for the third quarter is forecasted at 3,050 mbpd. Merchandise sales are expected in the band of $1,625-1,725 million. Speedway fuel sales are anticipated in the range of 2,525-2,625 million gallons.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

Currently, Marathon Petroleum has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Marathon Petroleum has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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