Marathon Petroleum Earnings: Profits Decline, but Still Relatively Strong; Repurchases To Continue

Marathon Petroleum’s MPC second-quarter adjusted earnings fell to $2.2 billion from $5.7 billion a year ago, exceeding market expectations, as refining market conditions weakened from record levels a year ago.

During the quarter, Marathon repurchased $3.1 billion in shares and has $6.3 billion remaining on existing authorizations, or about 11% of its current market cap.

Refining and marketing operating income fell to $2.3 billion from $7.1 billion the year before on weaker realized refining margins, which fell to $22.10/barrel from $37.5/bbl. Despite the decline in margins, they remain well above historical levels, supporting strong earnings and cash returns. Costs fell slightly to $5.15/bbl from $5.19/bbl last year as Marathon maintains the cost improvements made in recent years. The capture rate remained strong at 97% during the quarter thanks to improvements in commercial operations.

Shares have already increased sharply in the last month on those improvements. We have maintained Marathon is one of the better-positioned refiners given recent portfolio and cost improvements, but has looked fairly valued. This view is unchanged, but it remains a compelling option given the large repurchase program and high-quality asset base positioned to capitalize on a strong refining market.