Downstream firms Marathon Petroleum (MPC), Valero Energy (VLO), and Phillips 66 (PSX) had a mixed performance in the third quarter. While Marathon Petroleum’s adjusted earnings rose 49% YoY in the quarter, Valero Energy and Phillips 66’s earnings fell 29% and 3% YoY, respectively.
However, all of the companies beat their earnings estimates for the third quarter. Marathon Petroleum’s EPS of $1.63 crushed analysts’ estimate of $1.38. Meanwhile, Valero Energy’s EPS of $1.48 beat the estimate of $1.35. Phillips 66’s (PSX) EPS of $3.1 beat the forecast of $2.6.
MPC’s refining earnings rose
Analysts expected a decline in most companies’ refining earnings due to weaker business conditions. MPC amazed analysts by posting higher refining profits. However, Valero Energy and Phillips 66 saw a decline in their refining earnings.
Marathon Petroleum’s earnings rose across its business segments. The company’s operating earnings in the refining, retail, and midstream segments rose 33%, 175%, and 35% YoY, respectively, in the third quarter.
MPC’s earnings rose due to integrating Andeavor’s assets. There was a high refining capacity, a vast retail network, and a massive midstream asset base. Also, the company optimized its supply chain to derive the best value out of every molecule processed.
Valero Energy and Phillips 66’s refining profits fell
Phillips 66’s adjusted earnings fell 34% YoY in its refining segment. The fall was partially offset by a 41%, 29%, and 2% YoY rise in its midstream, marketing, and chemical segments. The company’s marketing earnings rose due to higher volumes and better marketing margins. Also, better transport and NGL earnings supported Phillips 66’s midstream profits.
Valero Energy’s operating earnings fell 24% in its refining segment. However, the other two segments had a turnaround. While the ethanol segment turned from a profit last year to a loss this year, the renewable energy segment turned from a loss to a profit. The renewable segment performed well due to higher sales volumes in the segment.
Refining margin trend
Marathon Petroleum, Valero Energy, and Phillips 66 saw a mixed trend in the changes in refining margin.
Only Marathon Petroleum saw a rise of $0.4 per barrel in its refining margin in the quarter. Valero Energy and Phillips 66 saw a $0.4 per barrel and $2.2 per barrel fall in their margins.
MPC’s refining margin was the highest at $14.7 per barrel. Phillips 66’s margin was $11.2 per barrel, while Valero Energy’s margin was $10.0 per barrel.
Marathon Petroleum has performed better than Valero Energy and Phillips 66 due to the change in earnings. The rise in the company’s earnings was a positive surprise. Analysts expected Marathon Petroleum’s profits to fall.
The surge indicates the strength of Marathon Petroleum’s integrated downstream model. The substantial capacity additions due to Andeavor boosted MPC’s revenues and profits. Also, the company’s better refining earnings and margin were a surprise.
Marathon Petroleum’s plan to spin off Speedway could unlock significant value for shareholders. The company is reviewing options for its midstream operations. Elliott Management’s letter to Marathon Petroleum recommended breaking up the company into three parts—refining, midstream, and retail.
Refining stocks have risen since the beginning of the earnings season on October 24. Phillips 66, Valero Energy, and Marathon Petroleum have increased 9.1%, 7.7%, and 0.9%, respectively. The increase could be due to the earnings beat and stronger markets. The S&P 500 Index has risen 2.4% during the same period due to trade talk optimism.
HollyFrontier (HFC), Delek US Holdings (DK), and PBF Energy (PBF) have also risen 0.5%, 4.9%, and 9.0%. HollyFrontier’s earnings beat the estimates in the third quarter. Similarly, Delek US Holdings and PBF Energy beat the forecasts.