10-QPeriod: Q2 FY2014

Marathon Petroleum Corp Quarterly Report for Q2 Ended Jun 30, 2014

Filed August 4, 2014For Securities:MPC

Summary

Marathon Petroleum Corporation (MPC) reported solid financial results for the second quarter of 2014, with net income attributable to MPC increasing by $262 million year-over-year to $855 million, or $2.95 per diluted share. This performance was primarily driven by a significant improvement in the Refining & Marketing segment, which saw its income from operations rise by $357 million, largely due to more favorable net product price realizations and a higher U.S. Gulf Coast crack spread. The Pipeline Transportation segment also showed growth, with income from operations increasing by $23 million. However, the first six months of 2014 presented a mixed picture, with net income attributable to MPC decreasing by $264 million to $1,054 million, or $3.60 per diluted share, compared to the same period in 2013. This decline was primarily attributed to a $386 million decrease in the Refining & Marketing segment's income from operations, impacted by higher refinery direct operating costs and narrowing crude oil differentials. The Speedway segment also experienced a decrease in income from operations by $38 million for the first six months, attributed to lower gasoline and distillate gross margins and increased operating expenses. The company also highlighted its ongoing strategic initiatives, including the pending acquisition of Hess Retail and continued share repurchase programs.

Financial Highlights

49 data points
Beta

Revenue

$26.84B

Net Income

$855.00M

3.2% Net Margin

EPS (Diluted)

$1.48

Total Assets

$29.38B

Cash & Equivalents

$2.13B

Free Cash Flow

$576.00M

Financial Statements
Beta
Revenue$26.84B
SG&A Expenses$316.00M
Operating Expenses$25.56B
Operating Income$1.37B
Interest Expense$49.00M
Net Income$855.00M
EPS (Basic)$1.49
EPS (Diluted)$1.48
Shares Outstanding (Basic)574.00M
Shares Outstanding (Diluted)578.00M

Key Highlights

  • 1Net income attributable to MPC for Q2 2014 was $855 million, a significant increase from $593 million in Q2 2013, driven by strong Refining & Marketing performance.
  • 2Refining & Marketing segment income from operations surged by $357 million year-over-year in Q2 2014, benefiting from improved product prices and crack spreads.
  • 3Pipeline Transportation segment income from operations increased by $23 million in Q2 2014, supported by higher transportation revenues and equity affiliate income.
  • 4Speedway segment income from operations saw a decline of $29 million in Q2 2014, primarily due to lower gasoline/distillate margins and increased operating expenses.
  • 5The company announced a significant pending acquisition of Hess Retail for $2.874 billion, expected to expand its retail presence and leverage integrated operations.
  • 6Marathon Petroleum continued its robust share repurchase program, repurchasing $1.15 billion of common stock in the first six months of 2014 and receiving an additional $2.0 billion authorization.
  • 7Cash provided by operating activities remained stable year-over-year for the first six months of 2014 at $1.64 billion, while investing activities showed a significant decrease in outflows compared to the prior year due to the absence of a large acquisition in 2014.

Frequently Asked Questions

The primary driver for the substantial increase in net income attributable to MPC in the second quarter of 2014 was the strong performance of the Refining & Marketing segment. This segment's income from operations increased by $357 million year-over-year, largely due to more favorable net product price realizations and a higher U.S. Gulf Coast crack spread.

The pending acquisition of Hess Retail, announced in May 2014 for $2.874 billion, is a key strategic initiative. It is expected to significantly expand Marathon Petroleum's retail presence into 23 states across the East Coast and Southeast, align with the strategy to grow stable cash flow businesses, and provide an outlet for an incremental 200,000 barrels per day from the refining system. While the acquisition is expected to be funded by debt and cash, its financial impact is forward-looking and subject to closing conditions.

The decline in net income attributable to MPC for the first six months of 2014, compared to the prior year, was primarily due to a significant decrease in the Refining & Marketing segment's income from operations. This was influenced by higher refinery direct operating costs, a narrowing of the LLS-WTI crude oil differential, and a lower sweet/sour crude oil differential. Additionally, the Speedway segment's income from operations also decreased due to lower gasoline and distillate gross margins and increased operating expenses.

Marathon Petroleum has a strong commitment to returning capital to shareholders. In the first six months of 2014, the company repurchased $1.15 billion of its common stock and continued to pay dividends, with quarterly dividends increasing to $0.42 per share in Q2 2014. The company also announced substantial additional share repurchase authorizations, indicating a continued focus on enhancing shareholder value through capital allocation.