Marathon Petroleum Results: Fourth Quarter 2021 Review (NYSE: MPC)

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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.

  1. I advise you to read my article on VLO by clicking here.
  2. 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.

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MPC: presentation of 4Q21 highlights (Oil Marathon)

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).

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MPC: Quarterly Revenue Comparison Chart 4Q20 4Q21 (Fun Trade)

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.

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Data by Y-Charts

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%.

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MPC: MPC, VLO, PSX Dividend Comparison Chart (Fun Trade)

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.

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MPC: Comparison MPC, PSX, VLO (Fun Trade)

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

Marathon Oil 4T20 1T21 2Q21 3Q21 4Q21
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

285

-242

8,512

694

774

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
Half-way 974 972 977 1,042 1,070
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

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MPC: Revenue History Graph (Fun Trade)

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:

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MPC: history of chart margins (Fun Trade)

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

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MPC: 1Q22 outlook presentation (Oil Marathon)

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

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MPC: Historical Free Cash Flow Chart (Fun Trade)

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

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MPC: History of cash versus debt (Fun Trade)

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.

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MPC: Presentation of the debt (Marathon Petroleum presentation)

Technical analysis (short term) and commentary

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MPC: TA card (Fun Trade)

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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