Morningstar | Marathon Petroleum 3Q Earnings Slip; Shares Starting to Look Attractive After Sell-Off
Marathon Petroleum reported a decrease in earnings in the third quarter to $737 million compared with $903 million last year largely on weaker refining and marketing results. A narrowing in refining margins compared with the year before contributed to refining and marketing segment operating earnings falling to $666 million from $1.1 billion the year before. However, the decline is largely attributable to $230 million of earnings dropped down to MPLX. The drop down combined with growth in volumes increased midstream operating earnings to $679 million from $355 million a year ago. Weakening in light product margins and higher operating expenses reduced Speedway’s operating income to $161 million from $208 million last year. Shareholder returns continued during the quarter, totaling $607 million, although share repurchases fell to $400 million from $885 million in the second quarter. The reduction was largely related to closing the Andeavor acquisition and does not reflect changes in management’s commitment to capital discipline and shareholder returns.Recent weakness in shares over concerns about IMO 2020 implementation and the health of the gasoline market have weighed on shares, in our view. Our fair value estimate and narrow moat rating are unchanged, however, leaving shares trading at attractive levels. The acquisition of Andeavor has dramatically expanded Marathon’s footprint beyond its advantaged midcontinent and Gulf Coast footprint. However, we think it remains one of the better positioned and better run refiners that can drive value from its integrated model. Further detail about the combined company’s’ strategy and synergy potential will be available in December at its annual analyst day.
For more on refiners see our Sept. 21 report, "Independent Refiners: Laissez les Bons Temps Rouler?"
Marathon Petroleum is an independent petroleum refining and marketing, retail and midstream company. The company's segments include: Refining and Marketing, which refines crude oil and other feedstocks at its refineries, purchases refined products and ethanol for resale and distributes refined products; Retail, which sells transportation fuels and convenience products in the retail market across the U.S.; and Midstream, which transports, stores, distributes and markets crude oil and refined products via refining logistics assets, pipelines, terminals, towboats and barges, gathers, processes and transports natural gas, and gathers, transports, fractionates, stores and markets natural gas liquids.
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