MPC Financial Analysis

Analysis Date: 2/5/2025

Business Model

Marathon Petroleum Corporation (MPC) operates through Refining & Marketing, Midstream (primarily through MPLX), and Renewable Diesel segments. Revenue is generated from the sale of refined products, renewable fuels, and midstream services.

Revenue Sources

• Sales of refined products (gasoline, diesel, jet fuel, etc.) from the Refining & Marketing segment.
• Revenue from midstream services, including transportation, storage, processing, and fractionation of crude oil, natural gas, and NGLs, primarily through MPLX.
• Sales of renewable diesel and related products from the Renewable Diesel segment.

Income Statement Analysis

• Sales and other operating revenues decreased by 8.6% compared to Q4 2023, indicating lower market prices and/or sales volume.
• Income from equity method investments increased by 29.2%, suggesting improved performance from associated companies.
• Net income attributable to MPC significantly decreased by 74.4% year-over-year, primarily driven by lower income from operations.
• Income from operations decreased by 52.4% year-over-year, indicating lower profitability in core operations.
• Net interest and other financial costs increased significantly by 120.7%, negatively impacting income before income taxes.
• Provision for income taxes decreased by 72.7% reflecting the decrease in income before income taxes.

Balance Sheet Analysis

• Cash and cash equivalents decreased by 20% from previous quarter, potentially due to capital return activities and investments.
• Short-term investments decreased to zero, possibly utilized for cash return or investments.
• Total consolidated debt decreased slightly by 2.6%, indicating debt management efforts.
• MPC debt increased by 6.5% while MPLX debt decreased by 5.1%, suggesting shifts in debt structure between MPC and its subsidiary MPLX.
• Equity decreased by 4.7%, likely due to share repurchases and net income for the period being less than distributions and buybacks.

Capital Allocation

MPC prioritizes capital allocation towards sustaining capital, a secure and growing dividend, value-enhancing capital investments, and share repurchases. For 2025, standalone capital spending is projected at $1.25 billion, with a focus on value-enhancing projects. The company increased its quarterly dividend by 10%. They returned $10.2 billion to shareholders in 2024 through dividends and share repurchases and have $7.8 billion remaining under share repurchase authorizations. MPLX distributions are expected to cover MPC's dividends and standalone capital outlook, with excess cash flow intended for share repurchases.

Management Commentary

In 2024, we generated net cash from operations of $8.7 billion, which enabled peer-leading capital return to shareholders of $10.2 billion.

Our strong cash flow generation was driven by our commitments to peer-leading operational excellence, commercial performance, and profitability per barrel in each of the regions in which we operate.

We expect distributions from MPLX in 2025 will cover MPC’s dividends and standalone capital outlook, further supporting our commitment to peer-leading capital return.

Refining & Marketing segment adjusted EBITDA was $559 million in the fourth quarter of 2024, versus $2.2 billion for the fourth quarter of 2023. The decrease in segment adjusted EBITDA was driven primarily by lower market crack spreads.

Overall Sentiment: Positive. Management emphasizes strong operational performance, cash flow generation, and commitment to shareholder returns, despite acknowledging lower Refining & Marketing segment earnings due to market conditions.

Recommendation

Rating: Hold

Reason for Rating: Given the significant decrease in net income attributable to MPC in Q4 2024 compared to Q4 2023, primarily due to lower refining margins, a Hold recommendation is appropriate. While the company demonstrates strong cash flow and commitment to shareholder returns, the decline in profitability in the core Refining & Marketing segment and increased interest costs raise concerns. The positive outlook for MPLX and Renewable Diesel segments, along with value-enhancing capital investments, provide some offsetting factors, but near-term headwinds in refining margins warrant caution.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/5/2025, 3:36:15 AM