Marathon (MPC) Q2 Loss Narrower Than Expected, Sells Speedway

Independent oil refiner and marketer Marathon Petroleum Corporation MPC reported adjusted loss of $1.33 per share, narrower than the Zacks Consensus Estimate of a loss of $1.86. The company’s bottom line was favorably impacted by strong-than-expected performance from the Retail and Midstream segments. Operating income from the units totaled $494 million and $869 million, ahead of the respective Zacks Consensus Estimates of $403 million and $807 million, respectively.

However, the bottom line compared unfavorably the year-earlier quarter's earnings of $1.73 due to weak showing from the Refining & Marketing segment. The unit’s results were dragged down by sharply lower refining margins.

Marathon Petroleum reported revenues of $15.2 billion that missed the Zacks Consensus Estimate of $16.2 billion and declined 54.9% year over year.

Forced by the historic oil market crash and the coronavirus-induced demand destruction for the fuel, Marathon Petroleum has already announced a cut to its 2020 capital spending plan by $1.4 billion, or 30%, to $3 billion. The company is also targeting a reduction in its operating expenses to $950 million.

Marathon Petroleum Corporation Price, Consensus and EPS Surprise

Marathon Petroleum Corporation Price, Consensus and EPS Surprise

Marathon Petroleum Corporation price-consensus-eps-surprise-chart | Marathon Petroleum Corporation Quote

Speedway Sale

Ahead of its earnings release, Marathon Petroleum announced the sale of its Speedway business to Japanese retail group Seven & i Holdings – owner of the 7-Eleven convenience store chain – for $21 billion. The deal is the biggest in the coronavirus-hit energy space this year and dwarfs Chevron’s CVX $5 billion buyout of Noble Energy NBL. With the sale of its Speedway-branded gas stations the company is expected to enhance value for shareholders – a longstanding demand from activist investor Elliott Management.

Moreover, in response to the collapsing product demand, Marathon Petroleum has announced plans to indefinitely stop production at its Gallup and Martinez refineries.

Y/Y Segmental Performance

Refining & Marketing: The Refining & Marketing segment reported operating loss of $1.6 million, as against income of $906 million in the year-ago quarter. The deterioration reflects lower y/y margins.

Specifically, refining margin of $7.13 per barrel decreased significantly versus $15.24 a year ago. Total refined product sales volumes were 2,878 thousand barrels per day (mbpd), down from the 3,814 mbpd in the year-ago quarter. Moreover, throughput fell from 3,135 mbpd in the year-ago quarter to 2,276 mbpd. Capacity utilization during the quarter was down 26% year over year to 71%.

Retail: Income from the Retail segment totaled $494 million, essentially unchanged from the year-ago period as a result of higher fuel margins, offset by lower volumes. In particular, the company's retail fuel margin surged from 26.66 cents per gallon in the second quarter of 2019 to 39.60 cents per gallon in the quarter under review. Meanwhile, same-store merchandise sales fell by 4% year over year while same-store gasoline fuel volume plunged 36.6% from the year-ago period.

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

Segment profitability was $869 million, flat with the second quarter of 2019. Earnings were supported by lower operating expenses, plus contribution from organic growth projects.

Costs, Capex & Balance Sheet

Marathon Petroleum – which spun off from Marathon Oil Corporation in 2011 – reported expenses of $14.2 billion in second-quarter 2020, down 55% from the year-ago quarter.

In the reported quarter, Marathon Petroleum spent $807 million on capital programs (33% on Refining & Marketing and 53% on the Midstream segment) compared to $1.4 billion in the year-ago period. As of Jun 30, the Zacks Rank #3 (Hold) company had cash and cash equivalents of $1.1 billion and a total debt of $32.2 billion, with a debt-to-capitalization ratio of 51%.

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