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Marathon Petroleum (MPC) Q3 Earnings Beat as Margin Soars

Nilanjan Choudhury

Ohio-based independent oil refiner and marketer Marathon Petroleum Corporation MPC reported strong third-quarter results on stronger fuel margin. The company’s earnings per share came in at $1.77, well above the Zacks Consensus Estimate of $1.45. Meanwhile, earnings soared from the year-ago period's bottom-line figure by 556%. Specifically, refining margin of $14.14 per barrel increased versus $11.32 last quarter and $10.67 a year ago.

Gasoline prices jumped to two-year highs in the wake of Hurricane Harvey that struck the U.S. Gulf Coast – home to more than 45% of domestic oil refining capacity – and caused weeks of disruptions, creating supply shortages. With oil prices essentially remaining unaffected, crack spreads soared.

Marathon Petroleum’s revenues of $19,386 million went past the Zacks Consensus Estimate of $17,808 million and improved 17.8% year over year.

Marathon Petroleum Corporation Price, Consensus and EPS Surprise


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


Segmental Performance

Refining & Marketing: Operating income from the Refining & Marketing segment – which is the main contributor to Marathon Petroleum earnings – was $1,097 million compared with $252 million in the year-ago quarter. The jump reflects wider gross margin.

Total refined product sales volumes were 2,357 thousand barrels per day (mbpd), up from the 2,316 mbpd in the year-ago quarter. Moreover, throughput improved from 1,926 mbpd in the year-ago quarter to 2,017 mbpd. Capacity utilization, at 102%, was up from 100% in the third quarter of 2016.

Speedway: Income from the Speedway retail stations totaled $209 million, same as the year-ago period. Contributions from a new joint agreement with Pilot Flying J and declining operating costs were offset by lower volumes, light product margin and merchandise profitability.

Midstream: This unit includes Marathon Petroleum’s 100% interest in MPLX L.P. MPLX, a publicly-traded master limited partnership that owns, operates, develops and acquires pipelines and other midstream assets.

Segment profitability was $355 million, up from $310 million in the second quarter of 2017. Earnings were buoyed by strength in volumes gathered, processed and fractionated. 

Total Expenses

Marathon Petroleum – which spun off from Marathon Oil Corp. MRO in 2011 – reported expenses of $17,810 million in third-quarter 2017, 11.1% higher than the year-ago quarter.

Capital Expenditure, Balance Sheet & Share Repurchase

In the reported quarter, Marathon Petroleum spent $791 million on capital programs (57% on the Midstream segment). As of Sep 30, the company had cash and cash equivalents of $2,088 million and total debt of $12,782 million, with a debt-to-capitalization ratio of 38%.

During the quarter under review, Marathon Petroleum returned $654 million of capital to shareholders, including $452 million of share repurchases. 

Share Performance

Shares of Marathon Petroleum have gained 8% during the third quarter, underperforming the industry’s 11.5% increase.

Zacks Rank & Stock Picks

Marathon Petroleum holds a Zacks Rank #3 (Hold).

Meanwhile, one can look at a better-ranked refiner like HollyFrontier Corporation HFC. Dallas, TX-based downstream operator – sporting a Zacks Rank #2 (Buy) –  has seen the Zacks Consensus Estimate for 2017 and 2018 increase 16.4% and 8.6%, to $1.77 and $2.27 per share, respectively, over 30 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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