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Why Is Marathon Petroleum (MPC) Down 8.3% Since Last Earnings Report?

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It has been about a month since the last earnings report for Marathon Petroleum (MPC - Free Report) . Shares have lost about 8.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Marathon Petroleum due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Marathon Petroleum Lags Q3 Earnings on Lower Refining Margins

Marathon Petroleum reported earnings per share of $1.62 in the third quarter of 2018, missing the Zacks Consensus Estimate of $1.68. The bottom line also declined from the year-ago figure of $1.77. The weaker-than-expected earnings were caused by declining profit from Refining & Marketing and Speedway segments, partially offset by rising income from the Midstream segment.

Revenues of Marathon Petroleum — which closed the $23.3 billion Andeavor acquisition deal on Oct 1 — of $23,132 million surpassed the Zacks Consensus Estimate of $22,881 million and also improved from $19,386 million in the third quarter of 2017.

Segmental Performance

Refining & Marketing: Operating profit from the Refining & Marketing segment fell to $666 million from $1,097 million in the year-ago quarter. The lower profit reflects a fall in Midwest and Gulf Coast crack spreads. Moreover, the same was impacted by $230-million dropdown transaction dated Feb 1, 2018.

Total refined product sales volumes were 2,394 thousand barrels per day (mbpd), up from 2,357 mbpd recorded in the year-ago quarter. Moreover, throughput edged up from 2,017 mbpd in the year-ago quarter to 2,032 mbpd. Capacity utilization of 97.4% was down from 101.5% in the third quarter of 2017.

Speedway:  Income from the Speedway retail stations totaled $161 million, down from the year-ago period’s $208 million. The segment’s results were impacted by a decline in light product (gasoline and distillate) margins and higher operating expenses.

Midstream: Segment profitability was $679 million, up from $355 million in the third quarter of 2017. Earnings were buoyed by strength in volumes gathered, processed and fractionated. The unit was further aided by the addition of refining logistics assets and fuels distribution services from sponsor Marathon Petroleum. 

Expenses

Marathon Petroleum reported expenses of $21,729 million in third-quarter 2018, 22% higher than the year-ago quarter’s $17,809 million. The increase primarily stemmed from the 23.1% year-over-year rise in cost of revenues to $20,457 million in the quarter.

Capital Expenditure

In the reported quarter, Marathon Petroleum spent $945 million on capital programs, of which 62.8% was used by the Midstream segment and 23.9% was allotted for the Refining and Marketing segment.

In the first nine months of 2018, the company made capital expenditures and investments of $2,611 million.

Balance Sheet

As of Sep 30, it had cash and cash equivalents of $4,992 million and total debt of $18,449 million, with a debt-to-capitalization ratio of 48%.

Share Repurchase

During the quarter under review, Marathon Petroleum returned $607 million to its shareholders, including $400 million in share repurchases. Notably, the company returned $3.2 billion capital to its shareholders in the first nine months of 2018.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted 7.51% due to these changes.

VGM Scores

Currently, Marathon Petroleum has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Marathon Petroleum has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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