Marathon Petroleum (MPC) Misses Q3 EPS Views; Announces Strategic Plans to Unlock Shareholder Value

October 27, 2016 6:35 AM EDT

Marathon Petroleum (NYSE: MPC) reported Q3 EPS of $0.58, $0.23 worse than the analyst estimate of $0.81. Revenue for the quarter came in at $16.46 billion versus the consensus estimate of $17.18 billion.

Marathon Petroleum also announced several initiatives to enhance shareholder value, primarily focused on unlocking value from its portfolio of high-quality midstream assets.

"Driving long-term value for our shareholders is a top priority. Since 2011, we have established a track record of taking sound, aggressive actions to create value. Our actions have enabled MPC to deliver a total shareholder return of approximately 140 percent, compared to S&P 500 returns of 82 percent. We have returned over $10 billion of capital to shareholders, including $7.4 billion through share repurchases, increased our dividend at a 28 percent compound annual growth rate, and reinvested in the business," said Gary R. Heminger, MPC chairman, president and chief executive officer.

"Investments in the business have transformed MPC's scale, diversification and stability, and positioned us to increase earnings and stable cash flows well into the future," Heminger said. "Despite the steps we have taken to create value for investors, we believe MPC's share price reflects a significant discount to the intrinsic value of our business, and much of that relates to the valuation ascribed to MPC's general and limited partner ownership interests in MPLX LP (NYSE: MPLX) and to the midstream assets that MPC holds directly. The initiatives announced today are designed to unlock additional value from our robust portfolio of midstream assets and to further benefit from the value-enhancing platform we have established with MPLX. We will be moving ahead expeditiously on each of these actions, while continuing to capture the compelling benefits of MPC's integrated and diversified model."

The strategic plan includes the following actions:

  • 2017 Dropdowns. MPC plans to offer to MPLX assets contributing a total of approximately $350 million of annual earnings before interest, taxes, depreciation and amortization (EBITDA) by the end of 2017, subject to market and other conditions. The first dropdown of assets contributing approximately $235 million of annual EBITDA is expected to occur by the end of the first quarter, pending requisite approvals. The transactions are expected to support increased limited and general partner distributions from MPLX and provide value creation for investors. The partnership's plans for funding these dropdowns would likely include transactions with MPC, including the potential for a substantial amount of equity issued to MPC.
  • Future Dropdown Strategy. Following these initial dropdown transactions, MPC would have an estimated
    $1 billion of annual EBITDA that could be dropped into MPLX to support the continued strong growth of partnership distributions and further enhance the value of MPC's limited and general partner interests in MPLX. Subject to market and other conditions, MPC intends to execute on these value-enhancing dropdowns as soon as practicable within the next three years, pending requisite approvals.
  • Highlighting the Value of the General Partner Interest. In addition to the expected dropdown transactions, MPC is evaluating strategic opportunities to highlight and capture the value of its general partner ownership interest in MPLX and optimize the cost of capital for the partnership. MPC has retained independent financial advisors to assist with this evaluation. The timing of any resulting transactions would be subject to market and other conditions.
  • Review of Segment Reporting. In connection with the above strategic actions to unlock value from its midstream assets, MPC also plans to evaluate changes to its internal financial reporting. This review will largely focus on the assets and earnings associated with its future dropdown strategy that are currently reported in the refining and marketing segment. MPC is working diligently on this assessment, which is likely to result in changes to its segment reporting beginning in 2017.

MPC looks forward to communicating with its shareholders as MPC executes its strategic plan. In addition, the Company will continue to analyze its businesses and portfolio to ensure that MPC continues to deliver superior performance and returns, consistent with its track record of maximizing shareholder value over the long term.

For earnings history and earnings-related data on Marathon Petroleum (MPC) click here.

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