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A Closer Look at Marathon Petroleum’s Cash Flow Position

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Marathon Petroleum’s cash flow

In the first quarter, Marathon Petroleum (MPC) recorded -$137 million in cash from operations. The company recorded cash outflows of $755 million in the form of an addition to plant, property, and equipment (or PPE), an acquisition, and $219 million in dividends.

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Marathon Petroleum’s cash flow shortfall

Marathon Petroleum’s cash outflows amounted to around $974 million in the first quarter if we consider the PPE additions, acquisition, and dividend payments. They led to a cash shortfall of around $1.1 billion (the difference between cash from operations and capex and dividend outflows). MPC also recorded share repurchases of $1.4 billion.

Total cash needs were met via debt. MPC saw a $4.3 billion rise in debt, which also resulted in a rise in MPC’s cash balance. MPC’s cash balance rose from $3.0 billion at the beginning of the first quarter to $4.7 billion at the end of the quarter.

Peers’ cash flow

MPC’s cash flow shortfall as a multiple of its earnings ability, its cash flow from operations, stood at 8.1x. This level marks the biggest shortfall in comparison to peers. Valero Energy (VLO) saw a cash flow shortfall of 5.7x in the first quarter. Andeavor (ANDV) and Phillips 66 (PSX) witnessed cash flow shortfalls of 2.6x and 0.3x, respectively.

Marathon Petroleum’s cash flow

MPC observed a discretionary cash flow shortfall in the first quarter. With more cash going to working capital in the quarter, MPC observed subdued cash from operations. However, as the second and third quarters approach, the situation might change due to the seasonal nature of its business. A similar quarterly trend was observed in the previous year. In 2017, MPC recorded a cash flow shortfall in the first quarter but ended the year with a surplus.

With MPC’s growth and acquisition activities, its earnings could surge. So, if earning rise, discretionary cash flows could turn into a surplus, leading to a better liquidity position.

Let’s look at how the company performed in the first quarter in the next part of this series.

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