Marathon Petroleum Corp. (NYSE:MPC)

The period under review demonstrates significant fluctuations in economic profit. Net operating profit after taxes (NOPAT) experienced substantial volatility, beginning with a positive value in 2019, followed by a large negative result in 2020, and then recovery in subsequent years. Concurrently, the cost of capital exhibited a consistent upward trend throughout the period, while invested capital generally decreased from 2019 to 2021 before showing some recovery.

NOPAT Trend

NOPAT began at US$6,182 million in 2019, then decreased dramatically to a loss of US$10,978 million in 2020. A recovery to US$6,187 million occurred in 2021, followed by a substantial increase to US$17,951 million in 2022. NOPAT then decreased to US$10,783 million in 2023, remaining positive but lower than the 2022 peak.

Cost of Capital Trend

The cost of capital increased steadily from 11.61% in 2019 to 15.03% in 2023. This consistent rise suggests increasing risk or changing market conditions impacting the company’s funding costs.

Invested Capital Trend

Invested capital decreased from US$82,004 million in 2019 to US$63,579 million in 2021. A partial recovery was observed in 2022, with invested capital reaching US$69,547 million, followed by a slight decrease to US$63,897 million in 2023. These fluctuations may reflect changes in capital expenditure, asset sales, or other investment decisions.

Economic Profit Trend

Economic profit mirrored the volatility in NOPAT. A negative economic profit of US$-3,339 million was recorded in 2019, which worsened significantly to US$-19,167 million in 2020. It improved to US$-2,212 million in 2021, then became positive at US$7,564 million in 2022. Economic profit decreased to US$1,180 million in 2023, indicating a decline in value creation compared to the previous year, despite remaining positive.

The significant shift from negative to positive economic profit in 2022, and subsequent decline in 2023, warrants further investigation. The increasing cost of capital throughout the period consistently placed downward pressure on economic profit, and the fluctuations in NOPAT were the primary driver of the overall economic profit trend.

The analyzed financial data reveals significant fluctuations in key profitability indicators over the five-year period ending December 31, 2023.

Net Income (Loss) Attributable to MPC

Net income exhibited pronounced volatility. The figure fell from a positive $2,637 million in 2019 to a substantial loss of $9,826 million in 2020, indicating a severe downturn, likely driven by adverse market or operational factors during that year. Recovery occurred in 2021 with net income rising sharply to $9,738 million, surpassing the 2019 level. This upward momentum continued into 2022, reaching a peak of $14,516 million, followed by a decline in 2023 to $9,681 million. Overall, the net income reflected substantial cyclical variation, with a drastic loss followed by strong recovery and subsequent moderation.

Net Operating Profit After Taxes (NOPAT)

NOPAT mirrored the pattern shown by net income, experiencing a significant negative shift in 2020 where it dropped to -$10,978 million from $6,182 million in 2019. The following years saw a robust recovery with NOPAT increasing to $6,187 million in 2021, nearly returning to the 2019 level, and then peaking at $17,951 million in 2022, which notably exceeded prior peaks in both net income and NOPAT. In 2023, NOPAT decreased to $10,783 million, indicating a moderation but remaining well above pre-2020 levels.

These trends suggest that the company was affected by a significant adverse event or market condition in 2020 leading to large losses and negative operating profit. However, the subsequent two years showed a robust rebound and profitability expansion beyond pre-2020 figures, implying possible operational improvements or favorable market conditions. The slight decline in both net income and NOPAT in 2023 could indicate some normalization or emerging challenges following exceptional performance in 2022.

Income Tax Provision (Benefit)

The income tax provision experienced significant volatility over the analyzed period. It started with a positive provision of 1,074 million USD at the end of 2019, followed by a substantial tax benefit of -2,430 million USD in 2020, indicating a reversal or tax credit situation. In 2021, the provision reverted to a modest positive value of 264 million USD. A notable increase occurred in 2022, reaching 4,491 million USD, before declining to 2,817 million USD at the end of 2023. This pattern suggests considerable fluctuations in taxable income or tax planning strategies leading to large swings in tax expense provisions.

Cash Operating Taxes

Cash operating taxes mirrored the overall trend of the income tax provision but with more pronounced changes. The 2019 figure stood at 324 million USD, then sharply decreased to a cash inflow (negative tax payment) of -1,899 million USD in 2020, reflecting adjustments or refunds. In 2021, cash taxes surged to 705 million USD, climbed dramatically to 4,421 million USD in 2022—the peak value in the period—and subsequently dropped to 3,010 million USD in 2023. These fluctuations align with variations in operational profitability and tax settlement timings, indicating an erratic but generally increasing cash tax burden post-2020.

The financial data reveals several key trends in the capital structure and investment base over the five-year period ending in 2023.

Total reported debt & leases

The total reported debt and leases experienced some fluctuations. Initially, it increased from 31,317 million USD in 2019 to a peak of 33,095 million USD in 2020. This was followed by a notable decline in 2021 to 26,904 million USD. Subsequently, a moderate rise occurred over the next two years, reaching 28,501 million USD in 2023. Overall, the debt levels show some volatility but remained below the 2019 level by the end of 2023.

Total MPC stockholders’ equity

Stockholders’ equity showed a declining trend over the period. Starting at 33,694 million USD in 2019, equity sharply decreased to 22,199 million USD in 2020. Although it buoyantly recovered to 26,206 million USD in 2021 and further increased to 27,715 million USD in 2022, equity declined again to 24,404 million USD in 2023. Despite recovery attempts, equity in 2023 remained significantly below the 2019 level, indicating possible challenges affecting retained earnings or other components of equity.

Invested capital

The invested capital consistently trended downward from 82,004 million USD in 2019 to 63,897 million USD in 2023, with intermediate fluctuations. It dropped to 70,186 million USD in 2020 and further to 63,579 million USD in 2021. A recovery occurred in 2022, reaching 69,547 million USD, followed by a decline again to 63,897 million USD in 2023. This pattern suggests variability in capital investment levels or changes in capital employed over the timeframe.

In summary, the data indicates that the company experienced a general reduction in invested capital and equity levels over the five years, paired with fluctuating debt levels that ultimately ended slightly below the initial value. The changes in equity and invested capital might reflect operational or strategic adjustments impacting the capital structure.

The economic spread ratio exhibited significant fluctuations between 2019 and 2023. Initially negative, the ratio demonstrated substantial volatility before stabilizing at a lower positive value. Economic profit moved from negative territory to positive, though with considerable variation year-over-year. Invested capital generally decreased over the period, with a slight increase observed in 2022 before declining again in 2023.

Economic Spread Ratio

In 2019, the economic spread ratio was -4.07%. This indicates that the company’s return on invested capital was below its weighted average cost of capital. The ratio deteriorated significantly in 2020, reaching -27.31%, suggesting a substantial shortfall in returns relative to the cost of capital. A partial recovery occurred in 2021, with the ratio improving to -3.48%, but still remaining negative. A marked positive shift was observed in 2022, with the ratio reaching 10.88%, indicating returns exceeded the cost of capital. The ratio moderated in 2023 to 1.85%, remaining positive but considerably lower than the prior year.

Economic Profit

Economic profit was negative in 2019, at -3,339 million US dollars, and experienced a substantial decline in 2020, reaching -19,167 million US dollars. This aligns with the significantly negative economic spread ratio observed in the same year. Economic profit improved considerably in 2021 to -2,212 million US dollars, reflecting the partial recovery in the economic spread ratio. The year 2022 saw a positive economic profit of 7,564 million US dollars, corresponding with the substantial increase in the economic spread ratio. Economic profit decreased in 2023 to 1,180 million US dollars, consistent with the lower economic spread ratio.

Invested Capital

Invested capital decreased from 82,004 million US dollars in 2019 to 70,186 million US dollars in 2020, and continued to decline to 63,579 million US dollars in 2021. A slight increase was noted in 2022, with invested capital rising to 69,547 million US dollars. This trend reversed in 2023, with invested capital decreasing to 63,897 million US dollars. The fluctuations in invested capital do not appear to directly correlate with the changes in economic profit or the economic spread ratio, suggesting other factors may be influencing these metrics.

Overall, the period demonstrates a transition from substantial underperformance, as indicated by negative economic profit and a highly negative economic spread ratio, to a period of positive economic profit and a positive, though fluctuating, economic spread ratio. The decrease in invested capital throughout the period may have contributed to the improved economic spread ratio in later years, although the relationship is not straightforward.

The economic profit margin exhibited significant fluctuations between 2019 and 2023. Initially negative, it experienced a substantial decline in 2020 before recovering and ultimately stabilizing at a lower positive value by the end of the period. This analysis details the observed trends in economic profit and its relationship to sales revenue.

Economic Profit

Economic profit began at a negative US$3.339 billion in 2019. It deteriorated considerably in 2020, reaching a negative US$19.167 billion. A substantial improvement occurred in 2021, reducing the loss to US$2.212 billion. Profitability then shifted to positive territory in 2022 with a profit of US$7.564 billion, although this decreased to US$1.180 billion in 2023.

Sales and Other Operating Revenues

Sales revenue decreased from US$123.949 billion in 2019 to US$69.779 billion in 2020, coinciding with the largest decline in economic profit. Revenue rebounded strongly in 2021 to US$119.983 billion and continued to increase in 2022, reaching US$177.453 billion. A subsequent decrease was observed in 2023, with sales revenue reported at US$148.379 billion.

Economic Profit Margin

The economic profit margin was -2.69% in 2019. It experienced a dramatic decrease to -27.47% in 2020, reflecting the significant decline in economic profit relative to sales. The margin improved to -1.84% in 2021, and then increased substantially to 4.26% in 2022. The margin decreased to 0.80% in 2023, indicating a reduced level of economic profit generated per dollar of sales compared to the prior year.

The correlation between sales revenue and economic profit is apparent. The substantial drop in sales in 2020 appears to have been a primary driver of the significant decline in economic profit and the corresponding margin. While both metrics recovered in 2021 and 2022, the economic profit margin did not return to its 2019 level, suggesting that profitability, relative to revenue, remained lower despite the increased sales. The decrease in both economic profit and the margin in 2023 indicates a potential weakening of profitability despite a still substantial level of sales.