Strong Retail Buoys Marathon Petroleum in First Quarter of 2020

FINDLAY, Ohio — For public companies, the timing of the COVID-19 pandemic hit during the closing weeks of the 2020 first quarter, impacting financial results for the three-month period. However, for Marathon Petroleum Corp. (MPC), its Q1 financial results were buoyed, in part, by the performance of its retail segment amid the crisis.

"The global pandemic became the focus in the quarter, and that continues today with our immediate priority on safely operating our assets to supply products to the market, protecting the health and safety of our employees and customers, and supporting the communities in which we operate," President and CEO Mike Hennigan said during the company's first-quarter earnings call on May 5.

"The actions taken to prevent the spread of the virus have significantly reduced global economic activity and demand for our products, specifically toward the last month of the quarter. Our refining operating areas have been particularly hard hit in the Upper Midwest and on the West Coast," he explained. "At the same time, our midstream and retail businesses reported strong results, which offset some of the financial impact of lower refining demand and margins."

As a result of current challenges, MPC has made "prudent and tactical changes" to its business, according to Hennigan. These include:

• Reducing total capital spend by $1.4 billion, or approximately 30 percent, for 2020. This includes approximately $700-million reductions each for MPC and its midstream business MPLX LP. Changes are planned across all segments, with the remaining capital spend primarily related to projects that are in progress or nearing completion.
• Reducing planned operating expenses by approximately $950 million, primarily through reductions of fixed costs and deferring certain expense projects. This includes operating expense reductions of $750 million at MPC and $200 million at MPLX.
• Maintaining its financial flexibility by securing $3.5 billion of additional liquidity.

First-quarter Financial Results

Overall, MPC reported adjusted EBITDA of $1.9 billion for its 2020 first quarter, which was down approximately $1.3 billion from the fourth quarter of 2019. The decline in EBITDA was driven primarily by lower earnings in refining and marketing, according to Don Templin, chief financial officer.

In MPC's retail segment, the company reported first-quarter EBITDA of $644 million.

Q1 retail fuel margins were nearly 33 cents per gallon. "These strong fuel margins were partially offset by lower fuel volumes compared to the fourth quarter, reflecting demand destruction associated with COVID-19," Templin explained.

Same-store merchandise sales increased year over year despite fuel demand pressures in the quarter, "reflecting the resiliency of the Speedway brand," the CFO noted.

The company converted 39 convenience stores to the Speedway banner during the quarter before suspending activities as the health crisis spread across the country.

"We continue to target fourth quarter 2020 for the completion of the separation of Speedway and we are progressing separation activities," Templin said. "However, the separation timing could change given the COVID-19-related impact on the business environment and access to the capital markets."

Looking ahead to its second-quarter outlook, Templin said MPC expects fuel volumes of approximately 1.45 billion to 1.65 billion gallons, and merchandise sales in the range of $1.4 billion to $1.5 billion.

"While fuel volumes have been significantly impacted by demand destruction associated with shelter-in-place orders, we expect merchandise sales to remain relatively resilient," he said.

Findlay-based MPC is an integrated downstream energy company. It operates the nation's largest refining system with more than 3 million barrels per day of crude oil capacity across 16 refineries. MPC's marketing system includes branded locations across the United States, including Marathon brand retail outlets. Its subsidiary, Enon, Ohio-based Speedway LLC, owns and operates retail convenience stores across the United States.

MPC also owns the general partner and majority limited partner interests in MPLX LP, a midstream company that owns and operates gathering, processing and fractionation assets, as well as crude oil and light product transportation and logistics infrastructure.