Marathon Petroleum Earnings: Increasing Share Repurchases Again on Continued Strong Performance

Marathon Petroleum’s MPC first-quarter earnings increased to $2.7 billion from $845 million a year ago, exceeding market expectations, thanks largely to strong market conditions and continued strong operating performance.

During the quarter, Marathon repurchased $3.2 billion in shares and authorized another $5 billion, bringing its current outstanding authorization to $9 billion or about 17% of its current market cap.

Refining and marketing operating income increased to $3.0 billion from $768 million the year before on stronger realized refining margins, which increased to $26.15/bbl from $15.31/bbl. Costs increased to $5.68/bbl from $5.22/bbl last year on higher expenses for projects conducted during turnaround activity. The capture rate remained strong at 98% during the quarter thanks to improvements in commercial operations.

Shares have slid in the last month as distillate margins weakened and concerns over global economic health increased. They now trade slightly below our fair value estimate. Management indicated it had seen some weakness in distillate demand given inflationary pressures but echoed Valero’s management last week and retained a positive outlook, including for agriculture demand. It also attributed the decline in distillate margins to a normalization in the wake of Russian sanctions after the market had become too negative on supply availability earlier in the year. Furthermore, the outlook for distillate supply is favorable as refiners look to reduce production and switch to other fuels given strengthening jet fuel demand and rising gasoline inventories due to low inventories.

We continue to see economic weakness later in the year as the primary risk to refiners but note that despite some weakness of late, margins remain well above historical average levels. Also, while full, valuations are not stretched, in our view. U.S. refiners remain competitively advantaged.