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Earnings Capsule

Q2 2014 Marathon Petroleum Corporation Earnings Conference Call

Thursday, July 31, 2014 10:00 a.m. ET  

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MPC (Common Stock)

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Marathon Petroleum Corporation Reports Second-Quarter 2014 Results

  • Reported second-quarter earnings of $855 million ($2.95 per diluted share)
  • Increased dividend 19 percent, to $0.50 per share
  • Executed $459 million of share repurchases during second quarter and increased share repurchase authorization by $2 billion
  • Exercised option to acquire 35 percent interest in Southern Access Extension pipeline project

FINDLAY, Ohio, July 31, 2014 - Marathon Petroleum Corporation (NYSE: MPC) today reported 2014 second-quarter earnings of $855 million, or $2.95 per diluted share, compared with $593 million, or $1.83 per diluted share, for the second quarter of 2013. Second-quarter 2014 earnings included pretax pension settlement expenses of $5 million, compared with $60 million for the second quarter of 2013.

"We had an outstanding quarter, with our focus on top-tier operational performance across the MPC refining, marketing and transportation system continuing to yield excellent results," said President and CEO Gary R. Heminger. "Our integrated system operated very well, enabling us to efficiently meet consumers' needs and capture higher product price realizations in the markets where we do business.

"I'm especially pleased with our smooth ramp-up following the largest combined turnaround activity in our history, which we executed in the first quarter," added Heminger, "and the tremendous response by our team in Garyville, La., to bring the facility back on line quickly after it was hit by a tornado in late May."

Heminger noted that balancing return of capital to shareholders with investments in the business remains a priority. MPC purchased $459 million of its shares in the second quarter. On July 30, the MPC board of directors authorized up to an additional $2 billion of share repurchases through July 2016 and increased the quarterly dividend to $0.50 per share. During the 12 months ended June 30, MPC returned $3.1 billion of capital to shareholders, representing a yield against average share price of 13.5 percent.

"We also have made excellent progress on our strategic priority of growing our higher-valued, stable cash-flow businesses as we continue returning capital to shareholders," said Heminger. In the midstream, he noted that MPC recently exercised its option to acquire a 35 percent ownership interest in Enbridge Inc.'s Southern Access Extension pipeline project. This investment positions MPC as an equity owner in a system that will increase MPC's access to crude oil from an important region for North American production. The Southern Access Extension pipeline is expected to be in service mid-2015. MPC expects to invest approximately $295 million in the pipeline project.

On the retail side, Heminger said MPC has received notice that the Federal Trade Commission has concluded its review of the acquisition of Hess Retail Holdings LLC by MPC subsidiary Speedway LLC, which continues to prepare for a closing later this year. The company anticipates the acquisition will be a source of long-term value to MPC, resulting in Speedway growing to more than 2,700 stores in 23 states, and also adding transport operations and shipper history on various pipelines.

Segment Results

Total income from operations was $1.37 billion in the second quarter of 2014, compared with $960 million in the second quarter of 2013.

  Three Months Ended
  June 30
(In millions) 2014 2013
Income from Operations by Segment   
Refining & Marketing $    1,260 $      903
Speedway 94 123
Pipeline Transportation 81 58
Items not allocated to segments:   
  Corporate and other unallocated items (61) (64)
  Pension settlement expenses          (5)        (60)
     Income from operations $    1,369 $      960

Refining & Marketing

Refining & Marketing segment income from operations was $1.26 billion in the second quarter of 2014, compared with $903 million in the second quarter of 2013. The increase was primarily due to more favorable net product price realizations and a higher U.S. Gulf Coast crack spread, partially offset by a narrower West Texas Intermediate/Light Louisiana Sweet (WTI/LLS) crude oil differential and a lower Chicago crack spread. The company believes the second-quarter 2013 product price realizations compared to spot market values were negatively impacted by volatility in the Chicago market and effects of the Renewable Fuel Standard. The Gulf Coast LLS 6-3-2-1 crack spread in the second quarter of 2014 increased by $2.55 per barrel compared to the second quarter of 2013. The WTI/LLS crude oil differential narrowed by $8.09 per barrel and the Chicago 6-3-2-1 crack spread decreased by $2.72 per barrel when compared to the second quarter of 2013.

Speedway

Speedway segment income from operations was $94 million in the second quarter of 2014, compared with $123 million in the second quarter of 2013. Speedway's merchandise sales, as well as the margin percentage realized on those sales, were higher in the second quarter of 2014 compared to the second quarter of 2013. Speedway experienced a lower gasoline and distillate gross margin and higher operating expenses associated with an increase in the number of Speedway stores compared to 2013. The gasoline and distillate gross margin per gallon decreased 4.56 cents, from 17.38 cents in the second quarter of 2013 to 12.82 cents in the second quarter of 2014.   

Pipeline Transportation

Pipeline Transportation segment income from operations, including 100 percent of MPLX LP's operations, was $81 million in the second quarter of 2014, compared with $58 million for the second quarter of 2013. The increase was primarily due to higher pipeline transportation revenue and equity affiliate income associated with MPC's investment in LOOP LLC.

Items Not Allocated to Segments

Corporate and other unallocated expenses of $61 million in the second quarter of 2014 were consistent with the second quarter of 2013. During the second quarter of 2014, MPC recorded pretax pension settlement expenses of $5 million resulting from the level of employee lump-sum retirement distributions occurring in 2014, compared with $60 million of pretax pension settlement expenses in the second quarter of 2013.

Strong Financial Position and Liquidity

On June 30, the company had $2.1 billion in cash and cash equivalents, an unused $2.5 billion revolving credit agreement and a $1.3 billion unused trade receivables securitization facility. The company's credit facilities and cash position should provide it with sufficient flexibility to meet its day-to-day operational needs and continue its balanced approach to investing in the business and returning capital to shareholders. As of June 30, the company's strong financial position was reflected by its debt-to-total capital ratio of 25 percent.

Conference Call

At 10 a.m. EDT today, MPC will hold a webcast and conference call to discuss the reported results and provide an update on company operations. Interested parties may listen to the conference call on MPC's website at http://www.marathonpetroleum.com by clicking on the "2014 Second-Quarter Financial Results" link. Replays of the conference call will be available on the company's website through Wednesday, Aug. 13. Financial information, including the earnings release and other investor-related material, will also be available online prior to the webcast and conference call at http://ir.marathonpetroleum.com in the Quarterly Investor Packet and Earnings Capsule.

###

About Marathon Petroleum Corporation

MPC is the nation's fourth-largest refiner, with a crude oil refining capacity of approximately 1.7 million barrels per calendar day in its seven-refinery system. Marathon brand gasoline is sold through approximately 5,300 independently owned retail outlets across 19 states. In addition, Speedway LLC, an MPC subsidiary, owns and operates the nation's fourth-largest convenience store chain, with approximately 1,490 convenience stores in nine states. MPC also owns, leases or has ownership interests in approximately 8,300 miles of pipeline. Through subsidiaries, MPC owns the general partner of MPLX LP, a midstream master limited partnership. MPC's fully integrated system provides operational flexibility to move crude oil, feedstocks and petroleum-related products efficiently through the company's distribution network in the Midwest, Southeast and Gulf Coast regions. For additional information about the company, please visit our website at http://www.marathonpetroleum.com.

Investor Relations Contacts:
Beth Hunter (419) 421-2559
Geri Ewing (419) 421-2071

Media Contacts:
Angelia Graves (419) 421-2703
Jamal Kheiry (419) 421-3312


References to Earnings
References to earnings mean net income attributable to MPC from the statements of income. Unless otherwise indicated, references to earnings and earnings per share are MPC's share after excluding amounts attributable to noncontrolling interests.

Forward-looking Statements
This press release contains forward-looking statements within the meaning of federal securities laws. These forward-looking statements relate to, among other things, MPC's expectations, estimates and projections concerning MPC business and operations. You can identify forward-looking statements by words such as "anticipate," "believe," "estimate," "expect," "forecast," "project," "could," "may," "should," "would," "will" or other similar expressions that convey the uncertainty of future events or outcomes. Such forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond MPC's control and are difficult to predict. Factors that could cause actual results to differ materially from those in the forward-looking statements include: our ability to successfully complete the acquisition of Hess Retail Holdings LLC and to integrate the acquired retail operations and achieve the strategic and other expected objectives relating to the proposed acquisition, including any expected synergies; changes to the expected construction costs of the Southern Access Extension pipeline; volatility in and/or degradation of market and industry conditions; the availability and pricing of crude oil and other feedstocks; slower growth in domestic and Canadian crude supply; completion of pipeline capacity to areas outside the U.S. Midwest; consumer demand for refined products; transportation logistics; the reliability of processing units and other equipment; our ability to successfully implement growth opportunities; impacts from our repurchases of shares of MPC common stock under our share repurchase authorizations, including the timing and amounts of any common stock repurchases; state and federal environmental, economic, health and safety, energy and other policies and regulations, including the cost of compliance with the Renewable Fuel Standard; other risk factors inherent to our industry; and the factors set forth under the heading "Risk Factors" in MPC's Annual Report on Form 10-K for the year ended Dec. 31, 2013, filed with the Securities and Exchange Commission (SEC). In addition, the forward-looking statements included herein could be affected by general domestic and international economic and political conditions. Unpredictable or unknown factors not discussed here or in MPC's Form 10-K could also have material adverse effects on forward-looking statements. Copies of MPC's Form 10-K are available on the SEC website, MPC's website at http://ir.marathonpetroleum.com or by contacting MPC's Investor Relations office.



Consolidated Statements of Income (Unaudited) Three Months Ended Six Months Ended
June 30 June 30
(In millions, except per-share data) 2014 2013 2014 2013
Revenues and other income:   
  Sales and other operating revenues  
    (including consumer excise taxes) $  26,844 $  25,677 $  50,129 $  49,007
  Income from equity method investments 57 7 92 7
  Net gain on disposal of assets 11 1 12 2
  Other income           21           18           45           32
       Total revenues and other income 26,933 25,703 50,278 49,048
Costs and expenses:   
  Cost of revenues (excludes items below) 23,096 22,320 43,636 42,354
  Purchases from related parties 130 79 289 151
  Consumer excise taxes 1,599 1,596 3,114 3,054
  Depreciation and amortization 325 302 645 589
  Selling, general and administrative expenses 316 358 662 607
  Other taxes           98           88         202         177
       Total costs and expenses    25,564    24,743    48,548    46,932
Income from operations 1,369 960 1,730 2,116
  Net interest and other financial income (costs)         (48)         (45)         (94)         (93)
Income before income taxes 1,321 915 1,636 2,023
  Provision for income taxes         457         316         565         694
Net income 864 599 1,071 1,329
Less: Net income attributable to noncontrolling interests             9             6             17           11
Net income attributable to MPC $       855 $       593 $     1,054 $    1,318
   
Per-share data   
Basic:   
  Net income attributable to MPC per share $      2.97 $      1.84 $      3.63 $      4.03
  Weighted average shares:(a) 287 322 290 326
Diluted:   
  Net income attributable to MPC per share $      2.95 $      1.83 $      3.60 $      4.01
  Weighted average shares:(a) 289 324 292 328
Dividends paid $      0.42 $      0.35 $      0.84 $      0.70

(a)    The number of weighted average shares for the periods ended June 30, 2014, reflects the impact of our share repurchases.



Supplemental Statistics (Unaudited) Three Months Ended Six Months Ended
June 30 June 30
(In millions) 2014 2013 2014 2013
Income from Operations by Segment  
    Refining & Marketing $      1,260 $        903 $      1,622 $     2,008
    Speedway 94 123 152 190
    Pipeline Transportation 81 58 153 109
    Items not allocated to segments:   
       Corporate and other unallocated items (61) (64) (128) (131)
       Pension settlement expenses            (5)          (60)          (69)          (60)
Income from operations 1,369 960 1,730 2,116
Net interest and other financial income (costs)          (48)          (45)          (94)          (93)
Income before income taxes 1,321 915 1,636 2,023
Income tax provision          457          316          565          694
Net income 864 599 1,071 1,329
Less: Net income attributable to noncontrolling interests              9              6             17            11
Net income attributable to MPC $        855 $        593 $      1,054 $     1,318
   
Capital Expenditures and Investments(a)   
  Refining & Marketing $        235 $        134 $        413 $     1,554
  Speedway 44 76 76 112
  Pipeline Transportation 64 41 194 131
  Corporate and Other(b)            20            32            51            60
       Total $        363 $        283 $        734 $     1,857
   

(a)   The six months ended June 30, 2013, includes the acquisition of the Galveston Bay refinery and related assets, comprised of total consideration, excluding inventory and other current assets, plus assumed liabilities. Total consideration includes the base purchase price and a fair-value estimate of $600 million for the contingent consideration.
(b)   Includes capitalized interest.



Supplemental Statistics (Unaudited) (continued) Three Months Ended Six Months Ended
  June 30 June 30
  2014 2013 2014 2013
MPC Consolidated Refined Product Sales Volumes (thousands of barrels per day (mbpd))(a)(b) 2,153 2,135 2,059 2,016
Refining & Marketing (R&M) Operating Statistics(b)   
R&M refined product sales volumes (mbpd)(c) 2,145 2,125 2,048 2,004
R&M gross margin ($/barrel)(d) $      16.02 $         13.11 $        15.28 $         14.14
Crude oil capacity utilization (percent)(e) 98 99 91 96
Refinery throughputs (mbpd)(f):   
  Crude oil refined 1,674 1,690 1,563 1,562
  Other charge and blendstocks           158             174             178             206
       Total 1,832 1,864 1,741 1,768
Sour crude oil throughput (percent) 54 52 52 53
WTI-priced crude oil throughput (percent) 17 22 19 22
Refined product yields (mbpd)(f):   
  Gasoline 852 923 844 906
  Distillates 610 609 562 566
  Propane 37 40 36 36
  Feedstocks and special products 288 240 255 212
  Heavy fuel oil 27 31 28 31
  Asphalt             51               54               47               50
       Total 1,865 1,897 1,772 1,801
Refinery direct operating costs ($/barrel)(g):   
  Planned turnaround and major maintenance $        0.94 $          0.73 $          1.98 $          0.93
  Depreciation and amortization 1.39 1.28 1.47 1.35
  Other manufacturing(h)         4.77           4.06           5.32           3.94
       Total $       7.10 $          6.07 $         8.77 $          6.22
R&M Operating Statistics by Region - Gulf Coast(b)
Refinery throughputs (mbpd)(i)
  Crude oil refined 1,031 1,037 946 938
  Other charge and blendstocks           156             157             183             184
       Total 1,187 1,194 1,129 1,122
Sour crude oil throughput (percent) 67 64 64 66
WTI-priced crude oil throughput (percent) 2 11 3 9
Refined product yields (mbpd)(i):
  Gasoline 500 542 494 536
  Distillates 390 398 355 360
  Propane 25 25 23 22
  Feedstocks and special products 270 223 258 201
  Heavy fuel oil 16 20 15 19
  Asphalt             13               13               10               10
       Total 1,214 1,221 1,155 1,148
Refinery direct operating costs ($/barrel)(g)
  Planned turnaround and major maintenance $        0.57 $          0.60 $          2.11 $          0.72
  Depreciation and amortization 1.13 1.00 1.19 1.06
  Other manufacturing(h)         4.77           4.01           5.28           3.68
       Total $        6.47 $          5.61 $          8.58 $          5.46
Supplemental Statistics (Unaudited) (continued) Three Months Ended Six Months Ended
  June 30 June 30
  2014 2013 2014 2013
R&M Operating Statistics by Region - Midwest
Refinery throughputs (mbpd)(i)
  Crude oil refined 643 653 617 624
  Other charge and blendstocks             45               54               46               55
       Total 688 707 663 679
Sour crude oil throughput (percent) 34 34 34 35
WTI-priced crude oil throughput (percent) 40 40 43 42
Refined product yields (mbpd)(i):
  Gasoline 352 383 350 371
  Distillates 220 211 207 206
  Propane 13 15 14 14
  Feedstocks and special products 60 52 47 43
  Heavy fuel oil 11 11 13 12
  Asphalt             38               41               37               40
       Total 694 713 668 686
Refinery direct operating costs ($/barrel)(g)
  Planned turnaround and major maintenance $        1.53 $          0.90 $          1.62 $          1.22
  Depreciation and amortization 1.75 1.68 1.83 1.75
  Other manufacturing(h)         4.47           3.96           4.97           4.20
       Total $        7.75 $          6.54 $          8.42 $          7.17
Speedway Operating Statistics   
Convenience stores at period end 1,492 1,468
Gasoline and distillate sales (millions of gallons) 806 781 1,579 1,526
Gasoline and distillate gross margin ($/gallon)(j) $    0.1282 $      0.1738 $      0.1220 $      0.1525
Merchandise sales (in millions) $         830 $           806 $        1,552 $        1,517
Merchandise gross margin (in millions) $         224 $           212 $           416 $           396
Merchandise gross margin percent 27.1% 26.3% 26.8% 26.1%
Same store gasoline sales volume (period over period) (1.5%) 0.0% (1.1%) 0.3%
Same store merchandise sales (period over period)(k) 4.6% 4.5% 4.9%  2.8%
Pipeline Transportation Operating Statistics   
Pipeline throughput (mbpd):(l)   
  Crude oil pipelines 1,281 1,334 1,213 1,303
  Refined product pipelines           871             959             845             939
       Total 2,152 2,293 2,058 2,242

(a)   Total average daily volumes of refined product sales to wholesale, branded and retail (Speedway segment) customers.
(b)   Includes the impact of the Galveston Bay refinery and related assets beginning on the Feb. 1, 2013, acquisition date.
(c)   Includes intersegment sales.
(d)   Sales revenue less cost of refinery inputs and purchased products, divided by total refinery throughputs.
(e)   Based on calendar day capacity, which is an annual average that includes down-time for planned maintenance and other normal operating activities.
(f)    Excludes inter-refinery volumes of 43 mbpd and 37 mbpd for second quarter 2014 and 2013, respectively, and 51 mbpd and 33 mbpd for the six months ended June 30, 2014, and June 30, 2013, respectively.
(g)   Per barrel of total refinery throughputs.
(h)   Includes utilities, labor, routine maintenance and other operating costs.
(i)    Includes inter-refinery transfer volumes.
(j)    The price paid by consumers less the cost of refined products, including transportation, consumer excise taxes and bankcard processing fees, divided by gasoline and distillate sales volumes.
(k)   Excludes cigarettes.
(l)    On owned common-carrier pipelines, excluding equity method investments.
             

Segment Earnings Before Interest, Taxes, Depreciation & Amortization (Segment EBITDA) (Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
(In millions) 2014 2013 2014 2013
Segment EBITDA(a)
  Refining & Marketing $    1,524 $    1,155 $    2,147 $    2,496
  Speedway 123 150 209 244
  Pipeline Transportation        100          76        191        145
       Total Segment EBITDA(a) 1,747 1,381 2,547 2,885
Total segment depreciation & amortization (312) (297) (620) (578)
Items not allocated to segments        (66)      (124)      (197)      (191)
Income from operations 1,369 960 1,730 2,116
Net interest and other financial income (costs)        (48)        (45)        (94)        (93)
Income before income taxes 1,321 915 1,636 2,023
Income tax provision        457        316        565        694
Net income 864 599 1,071 1,329
Less: Net income attributable to noncontrolling
   interests            9            6           17          11
Net income attributable to MPC $      855 $      593 $    1,054 $    1,318

(a)    Segment EBITDA represents segment earnings before interest and financing costs, interest income, income taxes and depreciation and amortization expense. Segment EBITDA is used by some investors and analysts to analyze and compare companies on the basis of operating performance. Segment EBITDA should not be considered as an alternative to net income attributable to MPC, income before income taxes, cash flows from operating activities or any other measure of financial performance presented in accordance with accounting principles generally accepted in the United States. Segment EBITDA may not be comparable to similarly titled measures used by other entities.
             

Select Financial Data (Unaudited)
(Dollars in millions) June 30
2014
March 31
2014
  
Cash and cash equivalents $       2,125 $       2,166
Total debt(a) 3,638 3,659
Equity 11,037 10,758
Debt-to-total-capital ratio (percent) 25 25
Shares outstanding (millions) 285 290
Cash provided from operations (quarter ended) $          878 $          766

(a)   Includes long-term debt due within one year.


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