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Ohio-based independent oil refiner and marketer Marathon Petroleum Corporation (MPC - Analyst Report) reported better-than-expected fourth quarter 2012 profits attributable to favorable market conditions and increased earnings in all its segments.

Marathon Petroleum reported earnings per share (adjusted for special items) of $2.26 in the fourth quarter of 2012, ahead of the Zacks Consensus Estimate of $2.09.

Compared with the year-ago period, Marathon Petroleum’s per share earnings improved considerably (from a loss of 21 cents to a profit of $2.26) – on the back of strong refining margins and profitability in the Pipeline Transportation segment.

Revenues at $20.7 billion were up 6.5% year over year and surpassed the Zacks Consensus Estimate of $20.2 billion.

For its fiscal year ended Dec 31, 2012, Marathon reported per share adjusted profits of $9.79, above the Zacks Consensus Estimate of $9.66 and also higher than the 2011 adjusted earnings of $6.72 per share. Revenues of $82.5 billion were 4.7% above the prior year and also managed to beat the Zacks Consensus Estimate of $81.2 billion.

Segmental Performance

Refining & Marketing: Margins in the refining business increased from the year-earlier levels.

Marathon Petroleum’s refining and marketing unit earned $1.1 billion during the quarter, compared with a loss of $182.0 million in the year-ago period – reflecting higher gross margins.

The company's realized gross refining and marketing margin of $9.17 per barrel was more than the year-ago period's margin of 39 cents per barrel. Total refined product sales volumes increased (by 4.7%) from the year-earlier level to 1,686 thousand barrels per day, while throughput improved 5.6% year over year to 1,448 thousand barrels per day.

Speedway: Income from the Speedway retail stations totaled $77 million during the quarter, up slightly from $73 million in the year-ago period. The positive comparison was driven by increased gasoline and distillate gross margin as well as higher merchandise gross margin partially offset by high expenses related to increased number of stores.

Pipeline Transportation: Segment profitability for the most recent quarter was $72 million which increased 89.5% from the fourth quarter of 2011. Higher pipeline affiliate earnings and increased transportation tariffs aided the growth.

Capital Expenditure & Balance Sheet

During the quarter, Marathon Petroleum spent $379 million on capital programs (50.70% on Refining). As of Dec 31, 2012, the company had cash and cash equivalents of $4.9 billion and total debt of $3.4 billion, with a debt-to-capitalization ratio of 22%.

For its fiscal year ended Dec 31, 2012, Marathon returned about $1.76 billion to shareholders by way of dividend and share repurchase programs. The board of directors’ also increased outstanding share repurchases authorization to $2.65 billion.

Rating

Spun out of parent Marathon Oil Co. (MRO - Analyst Report) in June 2011, Marathon Petroleum is a leading refiner and marketer of petroleum products in the U.S.

The stock retains a Zacks Rank #2 (Buy). The company’s financial flexibility and strong balance sheet are real assets in this highly uncertain economy. A major advantage for the company is its proprietary access to pipelines, which inhibits lower-cost competitors from supplying to Marathon Petroleum's key markets.

Marathon Petroleum finished its $2.2 billion Detroit Heavy Oil Upgrading Project. The completion of the project will not only deliver an extra 80,000 barrels a day of heavy oil processing capacity but will also free up capital expenditures and boost the company’s free cash flow.

Additionally, the company’s proposed purchase of BP Plc's (BP - Analyst Report) Texas City refinery – one of the largest and most complex in the country – will help the company to solidify its position in the fuel export business, apart from improving production flexibility.

Another target achieved by Marathon was the initial public offering (IPO) of midstream master limited partnership MPLX LP (MPLX - Snapshot Report). The new units started trading on Oct 26, 2012.

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