5 Things Marathon Petroleum Corp. Management Wants You to Know

Marathon is benefiting from widening refining margins, and is sending tons of cash back to shareholders.

Sep 3, 2014 at 11:28AM

It's a good time to be an oil refiner, and Marathon Petroleum Corp. (NYSE:MPC) is proof of that. In oil refining, profitability depends very highly on margins. When spreads are wide, refiners rake in the profits. Of course, the downside to this business is that the reverse is also true, and refiners like Marathon suffered last year when margins shrank.

However, things are going very well right now, and this was clear from the company's most recent conference call. Here are a few key items Marathon Petroleum's management discussed in its second-quarter conference call.

Strong performance last quarter

"Our second quarter 2014 earnings were $855 million compared to $593 million in the second quarter of 2013."—Chief Financial Officer Donald C. Templin

This represented 44% growth. Diluted earnings per share soared 61% in the quarter. The primary contributor was great performance in its refining and marketing segment, which makes up almost all of the company's profits. Marathon reaped much higher price realizations this time around.

Integrated structure paying off

"In the midstream, we recently exercised our option to acquire a 35% ownership interest in Enbridge's Southern Access Extension pipeline project."—President and Chief Executive Officer Gary Heminger

Marathon believes this acquisition will gain access to an important region of North American crude oil production growth. The company expects to invest $295 million in the project, which should be completed by the middle of next year. It's clear that the strategy paid off. Marathon Petroleum generated 39% growth in operating profits in its pipeline transportation business last quarter. Management believes its integrated model allows it to reap increased efficiency, which provides some cost control.

Building its retail business

"We continue to believe that there is significant opportunity to leverage the best of both businesses."—Heminger

In addition to expanding into midstream, Marathon is also building its retail operations. This statement pertains to Marathon's acquisition of the retail operations of Hess Corp. and the ensuing integration with Marathon's existing Speedway retail business. Management states that Speedway generates sales per store that place it at the top of the industry.

Solid financial position

"At the end of the second quarter, we had $2.1 billion of cash and just over $3.6 billion of debt."—Templin

Over the past year, Marathon generated $4.3 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA). This has left the company with a rock-solid balance sheet. Marathon's debt-to-total capital ratio stands at just 25%, and the company carries leverage of just 0.8 times EBITDA.

Because of its huge earnings growth, Marathon is flush with cash. In the last 12 months alone, Marathon has generated $3.4 billion in operating cash, and $1.7 billion in free cash flow. Fortunately for shareholders, Marathon management isn't shy about spreading the wealth with investors.

Funneling lots of cash back to shareholders

"Balancing return of capital to shareholders with investments in the business remains a priority."—Heminger

Marathon purchased $459 million of its own shares in the second quarter. On top of that, the company authorized up to an additional $2 billion of share repurchases. Marathon wasn't done there, since it also increased the quarterly dividend to $0.50 per share, which was a 19% raise. During the 12 months ended June 30, Marathon returned $3.1 billion of capital to shareholders.

The Foolish takeaway

Marathon management had almost nothing but great things to say in its most recent conference call with analysts. The business environment for oil refiners is ripe for growth right now, thanks to wide margins. While last year was a difficult one for Marathon Petroleum, it's nothing but smooth sailing this year.

Marathon's separate initiatives to integrate its business into midstream and retail are contributing to earnings as well. This is all resulting in a lot of free cash flow, which the company is using to reward shareholders with dividend increases and huge share buybacks.

Do you know this energy tax "loophole"?

You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Bob Ciura has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers