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Has Marathon Petroleum Built a Diversified Earnings Model?

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Updated

Segmental earnings mix

Marathon Petroleum’s (MPC) operating income rose 52% YoY to $669 million in the first quarter. The higher operating income was led by increased retail and midstream earnings. However, the refining and marketing segment posted an operating loss in the first quarter, which changed the segmental earnings mix.

The refining and marketing segment’s operating earnings fell from -$133 million in the first quarter of 2018 to -$334 million in the first quarter. The operating earnings fell due to the rise in the direct operating cost, operating expenses, and other expenses. With higher losses, the refining and marketing segment dented Marathon Petroleum’s overall earnings in the first quarter. The refining and marketing segment, which hit Marathon Petroleum’s total earnings by 30% in the first quarter of 2018, impacted the overall earnings by 50% in the first quarter.

Marathon Petroleum’s retail earnings’ contribution to the total earnings rose from 22% in the first quarter of 2018 to 25% in the first quarter due to the rise in its earnings. In the first quarter, Marathon Petroleum’s retail earnings rose 79% to $170 million in the first quarter.

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The midstream segment was the main contributor to Marathon Petroleum’s overall earnings. The contribution from the midstream segment rose from 129% in the first quarter of 2018 to 136% in the first quarter. The segment’s operating income rose from $567 million in the first quarter of 2018 to $908 million in the first quarter. Better volumes resulted in higher midstream earnings due to the addition of assets from Andeavor Logistics. Corporate and other expenses dented Marathon Petroleum’s earnings by 11% in the first quarter compared to 20% in the first quarter of 2018.

Overall

Marathon Petroleum strengthened its diversified earnings model in the first quarter. The company’s midstream earnings helped when its refining losses dented the total earnings. The midstream earnings are a steady income stream for Marathon Petroleum. The retail segment also supported the company’s total earnings. Marathon Petroleum has built an integrated downstream model. The model is capable of supporting the company’s overall earnings even during periods with weaker refining earnings.

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