5 Highlights of Marathon Petroleum’s Third-Quarter 2017

By 
Greg Lindenberg, Editor, CSP

Speedway

FINDLAY, Ohio -- Speedway LLC had one of its best quarters ever, making it a “very strong segment” for Marathon Petroleum Corp. (MPC), said Gary Heminger, chairman and CEO, on the company’s Oct. 26 earnings call.

Overall, Marathon Petroleum Corp. reported 2017 third-quarter earnings of $903 million, compared with $145 million in third-quarter 2016, an increase of nearly four times and $758 million. "Illustrating the substantial earnings power of our integrated business model," the huge increase over the third quarter of last year was driven mainly by fuel volumes, executives said.

Total income from operations was $1.58 billion in third-quarter 2017, compared with $435 million in third-quarter 2016.

"All segments of the business reported strong results in the quarter," said Heminger. “In addition to our continued focus on driving strong operational and financial results, MPC is delivering on the strategic actions designed to further enhance shareholder value over the long term."

Here are some highlights from the quarter …

1. No-spin zone

Gary Heminger Marathon

In early September, following a strategic review, Marathon Petroleum decided to keep the nearly 2,750-unit Speedway LLC retail network as part of the company’s integrated structure rather than spin it off or sell it.

  • Click here to read 4 Reasons Marathon Petroleum Will Keep Speedway.

“Having a strong retail business in Speedway is a valuable differentiator for MPC, and we see significant opportunities for maximizing value creation at Speedway,” Heminger, above, said on the latest call, reiterating the recent decision. “This will be done by continuing to deliver on past organic investment and through additional investments to grow the business.”

2. Speedway delivers

Speedway gas station

Speedway reported third-quarter segment income from operations of $209 million, the same as in third-quarter of 2016, driven by solid light product and merchandise gross margins.

"Speedway continues to deliver top-tier operational and financial performance and has significant opportunities for growth over the long term," Heminger said. "This performance and its contribution to MPC is further validation of Speedway's importance to our integrated model and its ability to generate substantial returns for our shareholders. We will continue to focus resources and capital to Speedway to drive additional value over the long term."

Among other factors, the comparable-period segment results reflect reduced operating expenses, offset by lower light product gross margin, driven mainly by lower sales volume and lower merchandise gross margin. Speedway's light product margin was 17.72 cents per gallon (CPG) in third-quarter 2017 compared with 17.73 CPG in third-quarter 2016.

3. PFJ Southeast joint venture

Pilot Flying J

The quarter’s comparable-segment results also reflect the benefits of Speedway's new joint venture with Pilot Flying J, PFJ Southeast LLC, which began operations in fourth-quarter 2016.

The joint venture consists of 120 travel plazas, primarily in the Southeastern United States, 41 locations contributed by Speedway and 79 locations contributed by Pilot Flying J, all of which carry either the Pilot or Flying J brand and are operated by Pilot Flying J.

4. Refining and marketing

Marathon fuel terminal

The company’s refining and marketing segment reported third-quarter segment income from operations of $1.097 billion, compared with $252 million in the same quarter of 2016, an $845 million increase from third-quarter 2016.

"We are encouraged by improving market fundamentals and prospects for a more balanced supply-and-demand environment going forward," Heminger said. "With our fully integrated and flexible system, strategically located assets that provide excellent optionality and a focus on operational excellence, we believe we have a sustainable long-term competitive advantage that drives real value for shareholders over the long term. We also believe the execution of the final steps in our strategic actions will be important sources of value and cash flow, further supporting MPC's long-term value proposition for investors."

5. M&A

Hess gas station

While the strategic review of Speedway was underway, Marathon Petroleum was “not going to act on anything” merger-and-acquisitions related, Heminger said.

But now that the review is done, “midstream continues to be a very strong focus in our path going forward,” he said. “It just depends on if something makes sense, how big it is. We illustrated that we certainly have the competency to be able to leapfrog markets like we did when we bought Hess when we went to the East Coast, and we've been able to integrate the Hess assets very, very well into our system and exceed the synergies that we have planned.”

With seven refineries, Findlay, Ohio-based Marathon Petroleum is the nation's third-largest refiner. Marathon-brand gasoline is sold through approximately 5,600 independently owned retail outlets in 20 states and the District of Columbia. Its Enon, Ohio-based Speedway subsidiary owns and operates approximately 2,730 convenience stores in 21 states. MPC also owns the general partner of MPLX LP, a midstream master limited partnership (MLP).