Marathon Petroleum (MPC) Earnings Surprise In Q1, Sales Lag

Ohio-based independent oil refiner and marketer Marathon Petroleum Corp. (NYSE:MPC) reported strong first-quarter earnings on higher gross margins and solid operational performance from its ‘Midstream’ unit.

The company’s earnings per share came in at 6 cents, contrary to the Zacks Consensus Estimate for a loss of a penny.

However, Marathon Petroleum’s revenues of $16,393 million missed the Zacks Consensus Estimate of $19,030.9 million amid lower throughput volumes, though they were up 28% year over year.

Segmental Performance

Refining & Marketing: Operating loss from the Refining & Marketing segment was $70 million compared with a loss of $86 million in the year-ago quarter. The narrower loss reflects higher gross margin, which rose 18% to $11.65 a barrel.

Total refined product sales volumes were 2,085 thousand barrels per day (mbpd), down 3% from the 2,158 mbpd in the year-ago quarter. Moreover, throughput deteriorated from 1,774 mbpd in the year-ago quarter to 1,708 mbpd. Capacity utilization, at 83%, was down from 89% in the first quarter of 2016.

Speedway: Income from the Speedway retail stations totaled $135 million, 19% lower than the $167 million earned in the year-ago period. Fall in merchandise margins hampered the results.

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

Segment profitability was $309 million, up significantly from $189 million in the first quarter of 2016. Earnings were buoyed by new pipeline and marine equity investments as well as increased processing and fractionation activity.

Total Expenses

Marathon Petroleum reported expenses of $16,101 million in first-quarter 2017, 26% higher than $12,755 million in the year-ago quarter.

Capital Expenditure, Balance Sheet & Share Repurchase

In the reported quarter, Marathon Petroleum spent $1,325 million on capital programs (81% on the Midstream segment). As of Mar 31, 2017, the company had cash and cash equivalents of $2,167 million and total debt of $12,598 million, with a debt-to-capitalization ratio of 38%.

During the quarter under review, Marathon Petroleum returned $610 million of capital to shareholders, including $420 million of share repurchases.

Share Performance

Marathon Petroleum shares have risen 16% over the past 6 months, while the Zacks categorized Oil Refining & Marketing industry has gained just 1%.

Zacks Rank & Stock Picks

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

Meanwhile, one can look at better-ranked energy players like Diamond Offshore Drilling Inc. (NYSE:DO) and Cenovus Energy Inc. (TO:CVE) . Diamond Offshore is a Zacks Rank #1 (Strong Buy) stock, while Cenovus Energy carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Incorporated in 1989, Houston, TX-based Diamond Offshore is a major contract driller, providing comprehensive offshore drilling services to the global energy industry. The company has an excellent track of having outperformed estimates in each of the last four quarters.

Calgary-based Cenovus Energy is a large integrated oil company with a focus on the Canadian Oil Sands. It also produces oil and natural gas while also being involved in the transportation and refining of crude oil. The 2017 Zacks Consensus Estimate for this company is 40 cents, representing some 221% earnings per share growth over 2016. Next year’s average forecast is 46 cents, pointing to another 15% growth.

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