Yahoo Finance Marathon Petroleum Corporation (NYSE:MPC) Q1 2024 Earnings Call Transcript
Marathon Petroleum Corporation (NYSE:MPC) Q1 2024 Earnings Call Transcript April 30, 2024
Marathon Petroleum Corporation beats earnings expectations. Reported EPS is $2.59, expectations were $2.53. Marathon Petroleum Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Welcome to the MPC First Quarter 2024 Earnings Call. My name is Sheila, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Kristina Kazarian. Kristina, you may begin.
Kristina Kazarian: Welcome to Marathon Petroleum Corporation's first quarter 2024 earnings conference call. The slides that accompany this call can be found on our website at marathonpetroleum.com under the Investor tab. Joining me on the call today are Mike Hennigan, CEO; Maryann Mannen, President; John Quaid, CFO and other members of the executive team. We invite you to read the Safe Harbor statements on Slide 2. We will be making forward-looking statements today. Actual results may differ. Factors that could cause actual results to differ are included there as well as in our filings with the SEC. With that, I will turn the call over to Mike.
Mike Hennigan: Thanks, Kristina. Good morning and thank you for joining our call. Effective March 1, two new independent directors joined the MPC Board. Eileen Drake and Kimberly Ellison-Taylor have strong records of accomplishment in complex industries, making them outstanding additions, and we're happy to have them join our Board. As for the macro-refining environment, we remain constructive in our view. Oil demand is at a record high globally, and we expect oil demand to continue to set records into the foreseeable future. Forecasted outlooks for this year estimate 1.2 million to 2 million barrels per day of incremental demand over 2023, primarily driven by the growing need for transportation fuels. Within our own domestic and export business, we are seeing steady demand year-over-year for gasoline and growth for diesel and jet fuel.
And we continue to believe that 2024 will be another year of record refined product consumption. Global supply remains constrained, anticipated capacity additions have progressed more slowly than expected, and longer term, the level of announced capacity additions remains limited for the rest of the decade. In the first quarter, high global turnaround activity, the transition to summer gasoline blends, and light product inventories supported refining fundamentals, especially towards the end of the quarter. As we look forward, we believe these fundamentals will support an enhanced mid cycle environment for the refining industry. We believe the U.S. refining industry will remain structurally advantaged over the rest of the world. Our system has a locational advantage given the accessibility of nearby crude, which we believe will grow as cost of transportation increases.
The availability of low cost natural gas, low cost butane, and our refining systems complexity all increase our competitive advantage over the international sources of supply. Even with this outlook, we remain focused on capital discipline, while investing to grow earnings at strong returns. In the first quarter, we invested over $1.3 billion in capital expenditures, investments and acquisitions comprised of attractive refining projects and midstream investments including MPLX's $625 million strategic acquisition in the Utica Basin. In refining, we are investing predominantly at our large competitively advantaged facilities to enhance shareholder value and position MPC well into the future. With a focus on safety and asset reliability, we successfully completed the largest amount of planned maintenance work in MPC's history.
Four of our largest and most profitable refineries were in turnaround during the quarter limiting our financial performance. These assets were in turnaround during a period of lower demand and now we're ready to meet the increased consumption that comes with the summer driving season. In Midstream, MPLX continues to execute on attractive growth opportunities. The Harmon Creek II gas processing plant was placed into service in late February, bringing processing capacity to 6.5 billion cubic feet per day. And in the Permian Basin, Preakness II is approaching startup and expected to be online by the end of May. We're also building our 7th gas processing plant in the basin Secretariat, which is expected to be online in the second half of 2025. Once operational, our total processing capacity in the Delaware Basin will be approximately 1.4 billion cubic feet per day, which would average to a pace of roughly 1 new plant per year since 2018.
Additionally, MPLX announced 2 strategic transactions. First, in the Utica, MPLX enhanced its footprint through the acquisition of additional ownership interest in an existing joint venture and a dry gas gathering system. We've already seen growth in the rich gas window of the Utica and we see new producers moving into the region. Second, MPLX entered into a definitive agreement to combine the Whistler pipeline and Rio Bravo pipeline projects into a newly formed joint venture. The platform expands MPLX's natural gas value chain and positions MPLX for future growth opportunities. MPLX is strategic to MPC's portfolio. Its current $2.2 billion annualized cash distribution MPC fully covers MPC's dividend and more than half of our planned 2024 capital program.
We expect MPLX to continue to increase its cash distributions as it pursues growth opportunities, further enhancing the value of this strategic relationship. Our overall capital allocation framework remains consistent. We will invest in sustaining our asset base, while paying a secure, competitive and growing dividend, and we intend to grow the company's earnings while exercising strict capital discipline. Beyond these three priorities, we are committed to returning excess capital through share repurchases to meaningfully lower our share count. Demonstrating this commitment, today we announced an additional $5 billion share repurchase authorization. Our total capital return through share repurchases and dividends since May of 2021 now totals $35 billion with MPC share count reduced by nearly 50%.
Let me take a second to share our view on value. We continue to believe share repurchases make sense of the current share price level. When we purchase MPC stock, we are buying into a premier highly advantaged refining system. We're also buying into a growing midstream business via our ownership in MPLX. And finally, we are buying strong business execution, disciplined investment and a commitment to capital returns, which will continue to position MPC as an excellent investment. At this point, I'd like to turn the call over to Maryann.
Maryann Mannen: Thank you, Mike. Our team's operational and commercial execution supported our ability to generate earnings per share of $2.58 for the quarter $3.3 billion of adjusted EBITDA, while having 4 of our largest refineries in turnaround. This quarter, in conjunction with the planned turnaround activity, we took the opportunity to execute incremental, smaller, high return, quick hit projects focused on optimization and reliability initiatives. This planned maintenance activity contributed to a reduction in refinery throughput of nearly 270,000 barrels per day or 9% compared with the fourth quarter. We plan this turnaround activity to occur in the fourth quarter -- in the first quarter, excuse me, with a focus on safety and asset integrity and in a period of seasonally weaker demand.
Now with a large portion of our 2024 activity complete, we are well positioned to run our refining system near full utilization through the summer driving season. Capture in the quarter was 92% and reflects the seasonal market backdrop. Light product margins were weaker and product inventory builds were both headwinds to quarterly results. Our commitment to commercial excellence remains foundational. We believe that the capabilities we have built over the last few years provide a sustainable advantage versus our peers, and we expect to continue to see the impact in our quarterly results. We are successfully progressing our 2024 capital investment plan. This includes executing on a multiyear infrastructure investment at our Los Angeles Refinery and construction of a distillate hydrotreater at our Galveston Bay refinery, both expected to yield returns of approximately 20% or more.
In addition to these large projects, we continue to execute on smaller high return quick hit projects targeted at enhancing refinery yields, improving energy efficiency and lowering our cost. Let me turn the call over to John.
John Quaid: Thanks, Maryann. Slide 6 shows the sequential change in adjusted EBITDA from fourth quarter 2023 to first quarter 2024, as well as the reconciliation between net income and adjusted EBITDA for the quarter. Adjusted EBITDA was lower sequentially by approximately $300 million, driven primarily by heavy planned turnaround activity resulting in lower R&M throughputs. To assist with year analysis, we thought it helpful to note the company recorded an $89 million or $0.20 per share charge resulting from the quarterly fair value remeasurement of certain long-term incentive compensation. Aligned with shareholder value creation, the charge was driven by the $53 or 36% increase in our share price, as well as our total shareholder return performance versus our peers during the quarter.
Again, this charge, which we did not adjust for, reduced earnings by $0.20 per share. The tax rate for the quarter was 18%, resulting in a tax provision of $293 million. While this rate is lower than what we'd expect to see for the year, it reflects the permanent tax benefits of net income attributable to non-controlling interest in MPLX, as well as a discrete benefit related to equity compensation realized in the quarter. Moving to our segment results, Slide 7 provides an overview of our Refining & Marketing segment for the first quarter. Our Refining & Marketing results reflect lower throughputs associated with planned turnaround activity ran at 82% utilization processing over 2.4 million barrels of crude per day. Refining operating costs were $6.14 per barrel in the first quarter, higher sequentially, primarily due to the lower throughputs.
Sequentially, per barrel margins were up slightly as higher crack spreads were offset by lower margin capture. Slide 9 shows the changes in our midstream segment adjusted EBITDA versus the fourth quarter of 2023. Our Midstream segment is growing and generating strong cash flows. In this quarter, MPLX's distribution contributed $550 million in cash flow to MPC. As Mike said, MPLX remains a source of durable earnings in the MPC portfolio and is a differentiator for us. Slide 10 presents the elements of change in our consolidated cash position for the first quarter. Operating cash flow excluding changes in working capital was over $1.9 billion in the quarter, driven by both our refining and midstream businesses. Working capital was a $389 million use of cash for the quarter, driven primarily by minor builds include in fine product inventories mainly related to the turnaround activity.
This quarter, capital expenditures, investments and acquisitions were $1.3 billion including $710 million of growth and maintenance capital and $622 million for MPLX acquisitions, net of cash received. Highlighting our steadfast commitment to superior shareholder returns, MPC returned $2.5 billion via repurchases and dividends during the quarter. As Mike commented, earlier today, we announced the approval of an additional $5 billion for share repurchases and as of April 26, we have $8.8 billion remaining under our current share repurchase authorizations. And from May of 2021 through April 26 to this year, we have repurchased 312 million shares or 48% of the shares that were outstanding in May of 2021. At the end of the first quarter, MPC had approximately $7.6 billion in consolidated cash and short-term investments, which includes $385 million of MPLX cash.
Turning to guidance, on Slide 11, we provide our second quarter outlook. With our significant first quarter turnaround activity behind us, we are projecting higher throughput volumes of nearly 2.8 million barrels per day, representing utilization of 94%. Planned turnaround expense is expected to be approximately $200 million in the second quarter with activity primarily in the Mid-Con region. Operating costs are projected to be $4.95 per barrel in the second quarter, much lower than the first quarter, reflecting the benefit of running our system near full utilization and lower expected operating costs. For the full year, we expect operating cost per barrel to trend towards a more normalized level of $5 per barrel subject to energy cost volatility.
Distribution costs are expected to be approximately $1.5 billion for the second quarter. Corporate costs are expected to be $200 million. With that, let me pass it back to Mike.
Mike Hennigan: In summary, our unwavering commitment to safety, operational excellence and sustained commercial improvement positions us well. We will continue to prioritize capital investments to ensure the safe and reliable performance of our assets. We will also invest in projects where we believe there are attractive returns. The enhanced mid cycle environment should continue longer term given our advantages over marginal sources of supply and growing global demand. MPLX remains a source of growth and a unique competitive advantage in our portfolio. We believe it will continue to grow its cash distributions to cover both MPC's dividend and capital requirements and still generate excess cash before the first dollar of refining EBITDA is earned.
Another way to frame it, MPC has reduced its share count from approximately 650 million in May of 2021 down to approximately 355 million at the end of the first quarter. Over this same timeframe, the MPLX units owned by MPC is held roughly flat at approximately 650 million units. So the ratio of MPLX units held by MPC to our outstanding shares or the potential value to MPC on a per share basis from MPLX has nearly doubled. The midstream business which continues to grow provides a unique value proposition for MPC shareholders. We believe MPC is positioned as the refiner investment of choice with the strongest through cycle cash generation and the ability to deliver superior returns supported by our steadfast commitment to return capital. Consistent with our goal to have the strongest through cycle cash generation, even with 4 of our most profitable refineries in turnaround adjusted on a comparable basis, we still generated more cash from operations than our refining peers, very proud of the team's accomplishment.
With that, let me turn the call back to Kristina.
Kristina Kazarian: Thanks, Mike. As we open the call up for your questions, as a courtesy to all participants, we ask that you limit yourself to 1 question and a follow-up. If time permits, we'll reprompt for additional questions. With that, operator, we're ready.
See also
23 Cheapest Housing Markets in Canada and
20 Countries with the Highest Renewable Energy Consumption in the World.
To continue reading the Q&A session, please click here.
