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Earnings Capsule

Q3 2014 Marathon Petroleum Corporation Earnings Conference Call

Thursday, October 30, 2014 10:00 a.m. ET  

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MPC (Common Stock)

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Marathon Petroleum Corporation Reports Third-Quarter 2014 Results

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  • Reported third-quarter earnings of $672 million ($2.36 per diluted share)
  • Closed Speedway's acquisition of Hess' retail operations
  • Announced plans to substantially accelerate the growth of MPLX, and authorized sale of remaining 31 percent interest in MPLX Pipe Line Holdings to MPLX
  • Returned $442 million of capital to shareholders, including $301 million of share repurchases

           
FINDLAY, Ohio, Oct. 30, 2014 - Marathon Petroleum Corporation (NYSE: MPC) today reported 2014 third-quarter earnings of $672 million, or $2.36 per diluted share, compared with $168 million, or $0.54 per diluted share, for the third quarter of 2013. Third-quarter 2014 earnings included pretax pension settlement expenses of $21 million, compared with $23 million for the third quarter of 2013.

"The efficiency and flexibility of our integrated downstream system enabled us to continue capturing opportunities in the markets we serve," said President and CEO Gary R. Heminger. "Our ability to quickly adjust and direct refined products to the markets of greatest value has served consumers and MPC shareholders well."

"MPC's retail subsidiary, Speedway LLC, achieved outstanding performance during the quarter while preparing for the acquisition of Hess' retail operations, which closed on Sept. 30," Heminger said. "Speedway's consistent ability to generate strong merchandise margins provides great synergy with the fuel volumes and margins of the acquired Hess locations. We believe we will deliver sustained value from these synergies, and we welcome our new employees as we begin serving our customers in these new markets. This retail acquisition also has expanded our strategic options as planning for our midstream business continues to evolve." Speedway now owns and operates approximately 2,740 stores in 22 states.

Turning to midstream operations, Heminger said MPC plans to substantially accelerate the growth of MPLX LP (NYSE: MPLX), the master limited partnership sponsored by MPC. MPLX is expected to provide unitholders an average annual distribution growth rate percentage in the mid-20s over the next five years. By the end of 2015, MPLX expects to triple its annualized run-rate earnings before interest, taxes, depreciation and amortization (EBITDA) versus third-quarter 2014 annualized run-rate EBITDA. Heminger said this increased scale better positions MPLX to grow through organic projects, continued drop-downs and potential third-party acquisitions. In support of this plan, the MPC board of directors has authorized the sale of MPC's remaining 31 percent interest in MPLX Pipe Line Holdings LP to MPLX.

"We believe MPLX's long-term growth profile represents substantial value to MPC shareholders through our general partner interest, the incentive distribution rights and the potential for meaningful proceeds from asset sales to MPLX," said Heminger. "The opportunities for drop-downs of MPC's existing midstream assets, along with organic investments at MPC and MPLX, enable both MPC and MPLX to continue to participate in the energy infrastructure development taking place in the U.S., as well as allow for continuing capital returns to our owners." Heminger pointed out that MPC acquired $301 million of its own shares and paid $141 million in dividends during the quarter.

"MPC shareholders now own the largest refining, logistics and retail systems east of the Mississippi," Heminger concluded. "Our successful retail segment has almost doubled in size and our midstream assets are positioned to grow along with North American energy production. Our seven-plant refining system is characterized by top-tier assets located in attractive geographic markets. The investments we are making in MPC are consistent with our strategy of growing our higher-valued, stable cash-flow businesses while enhancing our refining margins. The company is well-positioned for continued value creation."

Segment Results

Total income from operations was $1.06 billion in the third quarter of 2014, compared with $301 million in the third quarter of 2013.

  Three Months Ended
 September 30
(In millions)   2014       2013  
Income from Operations by Segment              
Refining & Marketing $ 971     $ 227  
Speedway   119       102  
Pipeline Transportation   69       54  
Items not allocated to segments:              
  Corporate and other unallocated items   (76 )     (59 )
  Pension settlement expenses   (21 )     (23 )
  Income from operations $ 1,062     $ 301  

Refining & Marketing

Refining & Marketing segment income from operations was $971 million in the third quarter of 2014, compared with $227 million in the third quarter of 2013. The increase was primarily due to more favorable net product price realizations and higher U.S. Gulf Coast and Chicago crack spreads, partially offset by higher turnaround and other direct operating costs. The Chicago and Gulf Coast Light Louisiana Sweet 6-3-2-1 blended crack spread increased from $6.52 per barrel in the third quarter of 2013 to $8.70 per barrel in the third quarter of 2014.

Speedway

Speedway's third-quarter 2014 earnings are a record for the company, excluding impacts from the acquisition of Hess' retail operations. Speedway segment income from operations was $119 million in the third quarter of 2014, compared with $102 million in the third quarter of 2013. The increase was primarily the result of higher light product and merchandise margins, partially offset by higher operating expenses attributable to an increase in the number of stores. The light product margin increased from 14.04 cents per gallon in the third quarter of 2013 to 15.96 cents per gallon in the third quarter of 2014.

Pipeline Transportation

Pipeline Transportation segment income from operations, which includes 100 percent of MPLX's operations, was $69 million in the third quarter of 2014, compared with $54 million for the third quarter of 2013. The increase was primarily due to an increase in pipeline transportation revenue and equity affiliate income, partially offset by higher operating expenses attributable mainly to pipeline maintenance and expenses related to MPLX's proposed Cornerstone Pipeline project.

Items Not Allocated to Segments

Corporate and other unallocated expenses of $76 million in the third quarter of 2014 were higher than the third quarter of 2013 largely due to costs incurred in connection with the acquisition of Hess' retail operations. During the third quarter of 2014, MPC recorded pretax pension settlement expenses of $21 million resulting from the level of employee lump-sum retirement distributions occurring in 2014, compared with $23 million of pretax pension settlement expenses in the third quarter of 2013.

Strong Financial Position and Liquidity

On Sept. 30, the company had $1.9 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 Sept. 30, the company's strong financial position was reflected by its debt-to-total capital ratio of 36 percent. The increase over the prior quarter is primarily due to debt incurred as a result of the acquisition of Hess' retail operations.

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 Third-Quarter Financial Results" link. Replays of the conference call will be available on the company's website through Wednesday, Nov. 12. 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 5,400 independently owned retail outlets across 19 states. In addition, Speedway LLC, an MPC subsidiary, owns and operates the nation's second-largest convenience store chain, with approximately 2,740 convenience stores in 22 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:
Geri Ewing (419) 421-2071
Teresa Homan (419) 421-2965

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 regarding both MPC and MPLX. These forward-looking statements relate to, among other things, expectations, estimates and projections concerning the business and operations of MPC and MPLX. You can identify forward-looking statements by words such as "anticipate," "believe," "estimate," "objective," "expect," "forecast," "plan," "project," "potential," "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 the companies' control and are difficult to predict. Factors that could cause MPC's actual results to differ materially from those in the forward-looking statements include: our ability to successfully integrate the acquired Hess retail operations and achieve the strategic and other expected objectives relating to the acquisition, including any expected synergies; changes to the expected construction costs and timing of pipeline projects; 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; an easing or lifting of the U.S. crude oil export ban; 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; modifications to MPLX earnings and distribution growth objectives; 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 MPC's 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). Factors that could cause MPLX actual results to differ materially from those in the forward-looking statements include: the adequacy of MPLX capital resources and liquidity, including, but not limited to, availability of sufficient cash flow to pay distributions and execute business plans; the timing and extent of changes in commodity prices and demand for crude oil, refined products, feedstocks or other hydrocarbon-based products; volatility in and/or degradation of market and industry conditions; completion of pipeline capacity by competitors; disruptions due to equipment interruption or failure, including electrical shortages and power grid failures; the suspension, reduction or termination of MPC's obligations under commercial agreements; the ability to successfully implement growth strategies, whether through organic growth or acquisitions; state and federal environmental, economic, health and safety, energy and other policies and regulations; other risk factors inherent to MPLX's industry; and the factors set forth under the heading "Risk Factors" in MPLX's Annual Report on Form 10-K for the year ended Dec. 31, 2013, filed with the 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, in MPC's Form 10-K or in MPLX's Form 10-K could also have material adverse effects on forward-looking statements.


Consolidated Statements of Income (Unaudited)

  Three Months Ended
 September 30
  Nine Months Ended
 September 30
(In millions, except per-share data)   2014       2013       2014       2013  
Revenues and other income:                              
  Sales and other operating revenues (including consumer excise taxes) $ 25,438     $ 26,256     $ 75,567     $ 75,263  
  Income from equity method investments   29       9       121       16  
  Net gain on disposal of assets   2       1       14       3  
  Other income   12       8       57       40  
  Total revenues and other income   25,481       26,274       75,759       75,322  
Costs and expenses:                              
  Cost of revenues (excludes items below)   21,935       23,553       65,571       65,907  
  Purchases from related parties   112       103       401       254  
  Consumer excise taxes   1,622       1,631       4,736       4,685  
  Depreciation and amortization   322       299       967       888  
  Selling, general and administrative expenses   342       305       1,004       912  
  Other taxes   86       82       288       259  
  Total costs and expenses   24,419       25,973       72,967       72,905  
Income from operations   1,062       301       2,792       2,417  
  Net interest and other financial income (costs)   (50 )     (47 )     (144 )     (140 )
Income before income taxes   1,012       254       2,648       2,277  
  Provision for income taxes   333       81       898       775  
Net income   679       173       1,750       1,502  
  Less net income attributable to noncontrolling interests   7       5       24       16  
Net income attributable to MPC $ 672     $ 168     $ 1,726     $ 1,486  
                               
Per-share data                              
Basic:                              
  Net income attributable to MPC per share $ 2.38     $ 0.54     $ 5.99     $ 4.63  
  Weighted average shares:(a)   282       309       288       321  
Diluted:                              
  Net income attributable to MPC per share $ 2.36     $ 0.54     $ 5.95     $ 4.60  
  Weighted average shares:(a)   284       311       290       323  
Dividends paid $ 0.50     $ 0.42     $ 1.34     $ 1.12  
                               

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


Supplemental Statistics (Unaudited)

  Three Months Ended
 September 30
  Nine Months Ended
 September 30
(In millions)   2014       2013       2014       2013  
Income from Operations by segment                              
  Refining & Marketing $ 971     $ 227     $ 2,593     $ 2,235  
  Speedway   119       102       271       292  
  Pipeline Transportation   69       54       222       163  
  Items not allocated to segments:                              
  Corporate and other unallocated items   (76 )     (59 )     (204 )     (190 )
  Pension settlement expenses   (21 )     (23 )     (90 )     (83 )
Income from operations   1,062       301       2,792       2,417  
Net interest and other financial income (costs)   (50 )     (47 )     (144 )     (140 )
Income before income taxes   1,012       254       2,648       2,277  
Provision for income taxes   333       81       898       775  
Net income   679       173       1,750       1,502  
Less net income attributable to noncontrolling interests   7       5       24       16  
Net income attributable to MPC $ 672     $ 168     $ 1,726     $ 1,486  
                               
Capital Expenditures and Investments(a)                              
  Refining & Marketing $ 318     $ 243     $ 731     $ 1,797  
  Speedway   2,707       65       2,783       177  
  Pipeline Transportation   224       42       418       173  
  Corporate and Other(b)   29       61       80       121  
  Total $ 3,278     $ 411     $ 4,012     $ 2,268  
                               

(a)        The three and nine months ended Sept. 30, 2014, include $2.68 billion for the acquisition of Hess' retail operations and related assets. The nine months ended Sept. 30, 2013 include $1.36 billion for the acquisition of the Galveston Bay refinery and related assets.
(b)        Includes capitalized interest.


Supplementary Statistics (Unaudited) (continued)

  Three Months Ended
 September 30
  Nine Months Ended
 September 30
    2014     2013     2014     2013
MPC Consolidated Refined Product Sales Volumes (thousands of barrels per day (mbpd)(a)(b)   2,155       2,155       2,092       2,063  
Refining & Marketing (R&M) Operating Statistics(b)                              
R&M refined product sales volume (mbpd)(c)   2,140       2,148       2,079       2,052  
R&M gross margin (dollars per barrel)(d) $ 14.55     $ 9.25     $ 15.02     $ 12.42  
Crude oil capacity utilization (percent)(e)   100       99       94       97  
Refinery throughputs (mbpd):(f)                              
  Crude oil refined   1,720       1,682       1,616       1,603  
  Other charge and blendstocks   160       195       172       202  
  Total   1,880       1,877       1,788       1,805  
Sour crude oil throughput (percent)   52       53       52       53  
WTI-priced crude oil throughput (percent)   16       21       18       22  
Refined product yields (mbpd):(f)                              
  Gasoline   864       938       851       917  
  Distillates   598       578       574       570  
  Propane   36       39       36       37  
  Feedstocks and special products   330       259       280       227  
  Heavy fuel oil   24       31       27       31  
  Asphalt   63       70       52       57  
  Total   1,915       1,915       1,820       1,839  
Refinery direct operating costs ($/barrel):(g)                              
  Planned turnaround and major maintenance $ 1.52     $ 0.96     $ 1.82     $ 0.94  
  Depreciation and amortization   1.35       1.27       1.43       1.32  
  Other manufacturing(h)   4.33       4.10       4.96       4.00  
  Total $ 7.20     $ 6.33     $ 8.21     $ 6.26  
R&M Operating Statistics by Region - Gulf Coast(b)                              
Refinery throughputs (mbpd):(i)                              
  Crude oil refined   1,075       1,035       989       971  
  Other charge and blendstocks   155       175       174       181  
  Total   1,230       1,210       1,163       1,152  
Sour crude oil throughput (percent)   66       64       64       65  
WTI-priced crude oil throughput (percent)   1       7       2       8  
Refined product yields (mbpd):(i)                              
  Gasoline   505       561       498       545  
  Distillates   389       370       366       363  
  Propane   25       24       24       23  
  Feedstocks and special products   310       241       275       214  
  Heavy fuel oil   8       21       13       20  
  Asphalt   19       23       13       14  
  Total   1,256       1,240       1,189       1,179  
Refinery direct operating costs ($/barrel):(g)                              
  Planned turnaround and major maintenance $ 1.15     $ 0.86     $ 1.77     $ 0.77  
  Depreciation and amortization   1.10       1.01       1.16       1.04  
  Other manufacturing(h)   4.11       4.08       4.86       3.82  
  Total $ 6.36     $ 5.95     $ 7.79     $ 5.63  

Supplementary Statistics (Unaudited) (continued)

  Three Months Ended
 September 30
  Nine Months Ended
 September 30
    2014     2013     2014     2013
R&M Operating Statistics by Region - Midwest                              
Refinery throughputs (mbpd):(i)                              
  Crude oil refined   645       647       627       632  
  Other charge and blendstocks   38       56       43       55  
  Total   683       703       670       687  
Sour crude oil throughput (percent)   30       35       33       35  
WTI-priced crude oil throughput (percent)   41       43       42       43  
Refined product yields (mbpd):(i)                              
  Gasoline   359       377       353       373  
  Distillates   209       208       208       207  
  Propane   13       15       13       14  
  Feedstocks and special products   51       54       49       46  
  Heavy fuel oil   16       10       14       11  
  Asphalt   44       47       39       43  
  Total   692       711       676       694  
Refinery direct operating costs ($/barrel):(g)                              
  Planned turnaround and major maintenance $ 2.10     $ 1.08     $ 1.78     $ 1.17  
  Depreciation and amortization   1.75       1.66       1.80       1.72  
  Other manufacturing(h)   4.51       3.91       4.82       4.10  
  Total $ 8.36     $ 6.65     $ 8.40     $ 6.99  
Speedway Operating Statistics                              
Convenience stores at period-end(j)   2,744       1,471                  
Gasoline and distillate sales (millions of gallons)   842       803       2,421       2,329  
Gasoline and distillate gross margin (dollars per gallon)(k) $ 0.1596     $ 0.1404     $ 0.1351     $ 0.1483  
Merchandise sales (in millions) $ 870     $ 843     $ 2,422     $ 2,360  
Merchandise gross margin (in millions) $ 235     $ 224     $ 651     $ 620  
Merchandise gross margin percent   27.0 %     26.5 %     26.9 %     26.3 %
Same store gasoline sales volume (period over period)   (0.8 )%     1.0 %     (1.0 )%     0.6 %
Same store merchandise sales (period over period)(l)   4.8 %     5.6 %     4.8 %     3.8 %
Pipeline Transportation Operating Statistics                              
Pipeline throughputs (mbpd):(m)                              
  Crude oil pipelines   1,265       1,317       1,230       1,308  
  Refined products pipelines   839       913       843       930  
  Total   2,104       2,230       2,073       2,238  
                               

(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 downtime for planned maintenance and other normal operating activities.
(f)      Excludes inter-refinery volumes of 33 mbpd and 36 mbpd for third quarter 2014 and 2013, respectively, and 45 mbpd and 34 mbpd for the nine months ended Sept. 30, 2014 and 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)          Includes 1,245 stores acquired on Sept. 30, 2014, through the acquisition of Hess' retail operations and related assets. Segment results for the period prior to the acquisition do not include the results from these operations.
(k)      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.
(l)      Excludes cigarettes.
(m)     On owned common-carrier pipelines, excluding equity method investments.


Segment Earnings Before Interest, Taxes, Depreciation & Amortization (Segment EBITDA) (Unaudited)

  Three Months Ended
 September 30
  Nine Months Ended
 September 30
(In millions)   2014       2013       2014       2013  
Segment EBITDA(a)                              
  Refining & Marketing $ 1,228     $ 473     $ 3,375     $ 2,969  
 Speedway   152       131       361       375  
  Pipeline Transportation   89       73       280       218  
  Total Segment EBITDA(a)   1,469       677       4,016       3,562  
Total segment depreciation & amortization   (310 )     (294 )     (930 )     (872 )
Items not allocated to segments   (97 )     (82 )     (294 )     (273 )
Income from operations   1,062       301       2,792       2,417  
Net interest and other financial income (costs)   (50 )     (47 )     (144 )     (140 )
Income before income taxes   1,012       254       2,648       2,277  
Income tax provision   333       81       898       775  
Net income   679       173       1,750       1,502  
Less: Net income attributable to noncontrolling interests   7       5       24       16  
Net income attributable to MPC $ 672     $ 168     $ 1,726     $ 1,486  
                               

(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) September 30, 2014   June 30,  2014
Cash and cash equivalents $ 1,854     $ 2,125  
Total debt(a)   6,264       3,638  
Equity   11,266       11,037  
Debt-to-total-capital ratio (percent)   36       25  
Shares outstanding (millions)   281       285  
               
Cash provided from operations (quarter ended) $ 1,078     $ 878  
               

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


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