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Marathon Petroleum (MPC) Q2 Earnings Miss as Cost Increases

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Ohio-based independent oil refiner and marketer Marathon Petroleum Corp. (MPC - Free Report) reported marginally weaker-than-expected second-quarter earnings on lower gross margins and elevated costs. The company’s earnings per share (adjusted for special items) came in at $1.03, a penny below the Zacks Consensus Estimate.

Moreover, Marathon Petroleum’s revenues of $18,354 million missed the Zacks Consensus Estimate of $19,361 million.

Segmental Performance

Refining & Marketing: Operating income from the Refining & Marketing segment – which is the main contributor to Marathon Petroleum earnings – was $562 million compared with $1,025 million in the year-ago quarter. The deterioration reflects narrower gross margin.

Total refined product sales volumes were 2,370 thousand barrels per day (mbpd), up 1% from the 2,348 mbpd in the year-ago quarter. Moreover, throughput improved from 1,889 mbpd in the year-ago quarter to 2,023 mbpd.Capacity utilization, at 103%, was up from 96% in the second quarter of 2016.

Speedway: Income from the Speedway retail stations totaled $239 million, 24% higher than the $193 million earned in the year-ago period. Rise in merchandise margins, lower operating costs and increased light product margin benefited the results.

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

Segment profitability was $332 million, up from $253 million in the second quarter of 2016. Earnings were buoyed by contributions from the recently acquired Oklahoma-to-Illinois Ozark pipeline system, better returns from pipeline equity investments as well as increased NGL processing and fractionation activity.

Marathon Petroleum Corporation Price, Consensus and EPS Surprise


Marathon Petroleum Corporation Price, Consensus and EPS Surprise | Marathon Petroleum Corporation Quote

Total Expenses

Marathon Petroleum – which spun off from Marathon Oil Corp. (MRO - Free Report) in 2011 – reported expenses of $17,326 million in second-quarter 2017, 12% higher than $15,475 million in the year-ago quarter.

Capital Expenditure, Balance Sheet & Share Repurchase

In the reported quarter, Marathon Petroleum spent $784 million on capital programs (63% on the Midstream segment). As of Jun 30, 2017, the company had cash and cash equivalents of $1,450 million and total debt of $12,606 million, with a debt-to-capitalization ratio of 38%.

During the quarter under review, Marathon Petroleum returned $936 million of capital to shareholders, including $750 million of share repurchases. 

Dividend Hike

Prior to the earnings release, Marathon Petroleum also announced that its board of directors declared a quarterly cash dividend of 40 cents a share, an 11% increase over the current quarterly dividend of 36 cents a share. The dividend will be paid to stockholders of record on Sep 11 and paid on Aug 16.

Share Performance

Shares of Marathon Petroleum have gained 3.5% during the second quarter, underperforming the  industry’s 4.7% increase.

Zacks Rank & Stock Picks

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

Meanwhile, one can look at better-ranked energy players like Range Resources Corp. (RRC - Free Report) . Fort Worth, TX-based independent oil and gas producer – sporting a Zacks Rank #1 (Strong Buy) –  has a good earnings surprise history, beating estimates in 3 of the last four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

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