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Marathon Petroleum (MPC) to Post Q1 Earnings: What's Up?

Zacks Equity Research

Marathon Petroleum MPC is expected to release first-quarter 2019 results before the opening bell on May 8.

In the preceding three-month period, the independent oil refiner and marketer beat the Zacks Consensus Estimate by 21.72% on favorable crude differentials, growing throughput volumes and higher fuel margin. As far as earnings surprises are concerned, the Findlay, OH-based downstream operator surpassed the Zacks Consensus Estimate thrice in the last four reports.

Marathon Petroleum Corporation Price and EPS Surprise

Marathon Petroleum Corporation Price and EPS Surprise | Marathon Petroleum Corporation Quote

Investors are keeping their fingers crossed and hoping that the company can continue winning ways by surpassing earnings estimates this time around as well. While the refining giant’s competitors including Valero Energy Corporation VLO, HollyFrontier HFC and Phillips 66 PSX topped earnings estimates in their latest quarterly releases, our model indicates that Marathon Petroleum might not come up with a positive surprise in the to-be-reported quarter.

Let’s see which way estimates are treading.

The current Zacks Consensus Estimate for the quarter to be reported is a profit of a penny on revenues of $29.1 billion. However, earnings estimates have moved south by more than 97% over the past 30 days. The bottom-line estimate compares unfavorably with the year-ago earnings of 8 cents a share. Nonetheless, the top-line estimate for the to-be-reported quarter indicate y/y growth of 53%

Let’s take a look at the factors that are likely to shape Marathon Petroleum’s first-quarter earnings.

Factors Setting the Tone

Marathon Petroleum’s revenues are expected to gain traction in the to-be-reported quarter on the back of the acquisition of Andeavor in fourth-quarter 2018.

Its retail division is expected to benefit from higher year-over-year margins and sales. Results are expected to be buoyed by Speedway and acquired retail assets of Andeavor. As such, the current Zacks Consensus Estimate for quarterly income from operations is $347 million, way higher than $95 million reported in the year-ago level.

Midstream segment profitability is expected to reach $942 million from $567 million in the first quarter of 2018, benefiting from stronger contribution from MPLX and Andeavor Logistics.

However, Marathon Petroleum’s refining segment’s earnings indicators are giving mixed signals. Although the company’s larger blended crack and sour differentials bode well, sweet differentials may limit refining margins. Notably, the blended crack in the quarter to be reported has risen to $9.29 a barrel from $8.69, which can buoy its refining margins. While Marathon Petroleum's prompt sweet differentials collapsed deeper into a negative territory during the quarter, to $3.30 from 59 cents a year ago, the prompt sour differential remained negative but narrowed from $6.35 to $3.13.

What Our Model Says

Our proven model does not conclusively predict that Marathon Petroleum will beat the Zacks Consensus Estimate in the to-be-reported quarter. This is because it doesn’t have the right combination of the two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -87.30%.

Zacks Rank: Marathon Petroleum currently has a Zacks Rank of 3, which increases the predictive power of ESP. But we also need to have a positive Earnings ESP to be confident of a positive surprise.

Note that we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is seeing a negative estimate revision.

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Valero Energy Corporation (VLO) : Free Stock Analysis Report
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