Ohio-based independent oil refiner and marketer
Marathon Petroleum Corporation
(
MPC
) reported strong first quarter 2012 profits, buoyed by wider
refining margins.
The company, in its current form, came into existence following
the 2011 spin-off of Houston, Texas-based
Marathon Oil Corporation's
(
MRO
) refining/sales business into a separate, independent, publicly
traded entity.
Marathon Petroleum reported earnings per share of $1.70, blowing
away the Zacks Consensus Estimate of $1.27 and significantly above
the year-ago period profit of $1.48. Revenues at $20,275.0 million
were up 13.5% year over year and also surpassed the Zacks Consensus
Estimate of $19,107.0 million.
In a separate announcement, Marathon Petroleum said that it is
looking at strategic alternatives for some of its pipeline assets,
including the potential formation of a master limited partnership (
MLP
) by way of an initial public offering.
Segmental Performance
Refining & Marketing:
Margins in the refining business increased significantly from the
year-earlier levels. The situation was further helped by wider
sweet/sour differential.
Marathon Petroleum's refining and marketing unit earned $943
million during the quarter, compared to profits of $802 million
last year - reflecting higher margins and crack spreads.
The company's realized gross refining and marketing margin of
$8.36 per barrel was up markedly from last year period's margin of
$6.73 per barrel. Total refined product sales volumes were down
marginally (by 0.6%) from the year-earlier level to 1,532 thousand
barrels per day, while throughput was virtually flat at 1,320
thousand barrels per day.
Speedway
:
Income from the Speedway retail stations totaled $50 million during
the quarter, up from $33 million in the year-ago period. The
positive comparison was driven by improved gasoline and distillate
gross margin, together with higher merchandise gross margin.
However, same-store fuel sales were down by 1.1% year over
year.
Pipeline Transportation:
Segment profitability for the most recent quarter was $42 million,
down 17.7% from the first quarter of 2011, adversely affected by
lower equity earnings.
Capital Expenditure & Balance Sheet
During the quarter, Marathon Petroleum spent $240 million on
capital programs (64% on Refining & Marketing). As of March 31,
2012, the company had cash and cash equivalents of $2,205.0 million
and total debt of $3,321.0 million, with a debt-to-capitalization
ratio of 26%.
Recommendation & Rating
Spun out of parent Marathon Oil Co. in June 2011, Marathon
Petroleum is a leading refiner and marketer of petroleum products
in the U.S.
We have a long-term Outperform recommendation on the stock. Our
bullish investment theme stems from Marathon Petroleum's scale
advantage, impressive asset quality, and an extensive
midstream/retail network that diversifies its portfolio and
provides more stable revenue streams.
We believe management's recently approved $2 billion share
repurchase program and potential formation of a midstream MLP could
further boost shareholder value. Marathon Petroleum's low debt
ratio and hefty cash balance add to the positive sentiment. These
factors, coupled with the relatively inexpensive valuation, make
the company an attractive investment.
For the short-term, though (1-3 months), Marathon Petroleum
currently retains a Zacks #3 Rank (Hold rating).
MARATHON PETROL (
MPC
): Free Stock Analysis Report
MARATHON OIL CP (
MRO
): Free Stock Analysis Report
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