Why Analysts Expect a Subdued Performance from MPC in 1Q16



4Q15 estimated and actual performance

Marathon Petroleum (MPC) is expected to post its 1Q16 results on April 28, 2016. Before we proceed with 1Q16 estimates, let’s recap MPC’s 4Q15 performance versus estimates. In 4Q15, MPC’s revenues missed Wall Street analysts’ estimates by 4%. However, in 4Q15, on adjusting the EPS (earnings per share) for the inventory valuation charge, MPC’s adjusted EPS stood at $0.79, around 14% higher than the estimated EPS of $0.69.

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In 4Q15, MPC’s net income of $187 million fell by 77% compared to 4Q14 due to a fall in operating income from its refining and speedway (or marketing) segments, partly offset by a rise in income from its midstream segment. Plus, there was a combined charge of $370 million due to the lower of cost or market inventory valuation levied on the refining and speedway segments. Income from these segments fell to $207 million and $135 million, respectively, in 4Q15.

MPC’s 1Q16 estimates

According to Wall Street analysts’ estimates, MPC is expected to post EPS of $0.22 in 1Q16, which is 87% lower than 1Q15 adjusted EPS and 73% lower than 4Q15 adjusted EPS. MPC’s revenues are estimated to be around $13 billion in 1Q16, 24% lower than 1Q15 revenues.

In 1Q16, MPC’s refining earnings are likely to be lower compared to 1Q15, as the blended LLS (Light Louisiana Sweet) crack spread, the sweet-sour differential, and the LLS-WTI spread have fallen. We’ll discuss this in the next part of the series.

MPC’s peers CVR Refining (CVRR), Alon USA Energy (ALJ), and Delek US Holdings (DK) are expected to post losses in 1Q16. The Vanguard Energy ETF (VDE) has ~10% exposure to refining sector stocks.


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