Independent, Ohio-based U.S. refiner and marketer Marathon Petroleum (NYSE: MPC) released its fourth quarter 2021 results on February 2, 2022.
1 – Overview of 4Q21 and full-year 2021 results
Marathon Petroleum reported better-than-expected adjusted earnings of $794 million, or $1.30 per share, for the fourth quarter. Revenue increased significantly from $18.19 billion to $35.61 billion.
Marathon Petroleum’s main rivals Valero Energy (NYSE:VLO) and Phillips 66 (NYSE:PSX) also beat quarterly earnings expectations.
- I advise you to read my article on VLO by clicking here.
- I advise you to read my article on PSX by clicking here.
The company repurchased $2.742 billion worth of stock during the October-December period as part of its $10 billion common stock buyback announcement following the sale of Speedway.
The company’s results were positively impacted by a stronger than expected performance of the Refining & Marketing and the Half-way segments, with revenues totaling $881 million and $1,070 million (please see table below).
However, on a negative note, the company warned that a sustained rise in natural gas prices could severely hurt earnings, and the stock initially fell. Additionally, the Russian invasion of Ukraine has pushed costs to an all-time high and will likely reduce demand significantly.
2 – Stock market performance
I recommend following the VanEck Vectors Oil Refiners ETF (NYSEARCA: CRAK) for investors interested in the refining sector. Marathon Petroleum strongly outperformed the group and grew by 33% over one year.
3 – Investment thesis
I hold a large position in Valero Energy. Still, I view Phillips 66 and Marathon Petroleum as excellent alternatives focused on the added security of US business for dividend investors.
The investment thesis has not changed since the previous quarter. I believe it is essential to hold at least one of these big three US refiners in your portfolio for the long term.
Marathon Petroleum pays a dividend yield of 3.11%.
However, after a slow start, MPC performed exceptionally well in 2021 and is now relatively high. The refinery sector is very cyclical and it is crucial to trade LIFO a good part of your main position. Recent fluctuations are a constant reminder of this simple rule.
4 – Comparison of margins and graphics
Marathon Petroleum reported an overall R&M margin of $15.88 per barrel based on throughput per region. Details below:
|Gulf Coast||Mid-continent||Western coast||Total|
|$13.03/per Bbl||$15.44/per barrel||$15.56/per barrel||$15.88/per barrel|
Below is the graph showing second quarter revenue and net profit for Marathon Petroleum, Valero Energy and Phillips 66.
CEO Mike Hennigan said on the conference call:
During the fourth quarter, despite the general increase in cases of Omicron variants, gasoline demand held up well. And for diesel, we’re seeing on-road trucking volumes continue to meet or exceed seasonal highs. While demand for jets hit post-pandemic highs in the fourth quarter, it is still about 15% below 2019 levels as business travel remains suppressed, but we expect a recovery this year as well.
Marathon Petroleum – Financial History: The Raw Numbers – Fourth Quarter 2021
|Total revenue in billions of dollars||17.97||22.71||29.62||32.32||35.34|
|Total and other revenues in billions of dollars||18.19||22.88||29.83||32.61||35.61|
|Net income available to common shareholders in millions of dollars||
|EBITDA in millions of dollars||1,240||1,042||1,782||2,161||2,463|
|Diluted EPS in $/share||0.29||-0.37||1:00 p.m.||1.09||1.27|
|Cash flow from operations in millions of dollars||1,328||454||1,380||-1,148||3,674|
|CapEx in millions of dollars||457||304||302||377||481|
|Free cash flow in millions of dollars||871||150||1,078||-1,525||3,193|
|Total cash in billions of dollars||0.42||0.62||17.26||13.23||10.84|
|Consolidated debt in billions of dollars||31.71||32.61||28.32||27.34||25.54|
|Dividend per share in $||0.58||0.58||0.58||0.58||0.58|
|Shares outstanding (diluted) in millions||651||651||654||637||605|
|Operating profit by segment in millions of dollars||4T20||1T21||2Q21||3Q21||4Q21|
|Refining & Marketing||-1,579||-598||224||509||881|
|Items not assigned to segment||-175||-157||-180||-186||-173|
Source: Company News
Analysis: Revenue Details
1 – Revenue and other income was $35.61 billion in 4Q21
Marathon Petroleum reported total revenue of $35.61 billion in the fourth quarter of 2021, up 95.8% from the same quarter a year ago and up 9.2% sequentially. Net income was $774 million or $1.27 per diluted share.
Note: Base revenue was $35,336 million.
MPC reported adjusted earnings of $1.30 per share, beating analysts’ expectations.
It was up from a loss of $0.94 per share in the year-ago period. Operating revenue from the Refining & Marketing and Midstream units totaled $881 million and $1.180 billion, respectively, beating expectations.
Marathon Petroleum reported an overall R&M margin of $15.88 per barrel based on throughput per region doubling from $7.42 per barrel last year.
Refining operating costs were $4.97 per barrel, versus $5.41 in 4Q20.
Refining & Marketing: The company reported operating profit of $881 million, compared with a loss of $1,579 million in the same quarter a year ago. Below is the history of refinery margins:
Half-way : Marathon Petroleum’s majority and limited partners are MPLX (NYSE: MPLX). Sector profitability was $1,070 million, compared to $974 in the fourth quarter of 2020.
2 – Outlook for 2022
With Russia invading Ukraine and oil prices skyrocketing to a new high, I don’t think we need to focus on the outlook the company is showing.
3 – Free cash flow was $3,193 million in 4Q21
Note: Generic free cash flow is operating cash flow minus capital expenditures. The company has another way of calculating it.
Trailing twelve-month free cash flow was $2,896 million, including $3,193 million in 4Q21.
The dividend payout ($2.32 per share) on an annual basis is $1.48 billion.
As I said earlier, the company repurchased $2.742 billion worth of stock during the October-December period as part of its $10 billion common stock buyback announcement from following the sale of Speedway.
4 – Total debt is $25.54 billion (consolidated) in 4Q21
Note: The chart above shows debt on a consolidated basis.
As shown below, debt stands at $6.968 billion on an individual basis, with a debt-to-equity ratio of 21% and 43% on a consolidated basis. Total cash is $10,839 million.
Technical analysis (short term) and commentary
Note: Chart is adjusted for dividend.
MPC forms a symmetrical corner pattern with resistance at $78 and support at $75.
I recommend trading the short-term LIFO of around 30% of your total position and keeping your main position for a much higher target while enjoying a substantial dividend. It has worked wonders for me, especially during exceptional situations.
I recommend selling $78-$81 with a higher potential target at $85, assuming favorable conditions. Conversely, I suggest accumulating less than $75.
Warning: The TA table must be updated frequently to be relevant. This is what I do in my stock tracker. The table above has a possible validity of approximately one week. Remember that the TA chart is a tool only to help you adopt the right strategy. This is no way to predict the future. Nobody and nothing can.
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