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 generally increased over the five-year period, while invested capital decreased from 2019 to 2021 before showing a modest increase and then a decrease again in 2023.

NOPAT Trend

NOPAT began at US$6,182 million in 2019, plummeted to a loss of US$10,978 million in 2020, and then recovered to US$6,187 million in 2021. Further improvement was seen in 2022, reaching US$17,951 million, before declining to US$10,783 million in 2023. This suggests a strong sensitivity to external factors, potentially including commodity price fluctuations or demand shifts.

Cost of Capital Trend

The cost of capital exhibited an upward trend throughout the period, increasing from 11.57% in 2019 to 14.97% in 2023. This increase likely reflects broader macroeconomic conditions, such as rising interest rates or increased risk premiums. The rate of increase was more pronounced between 2021 and 2022.

Invested Capital Trend

Invested capital decreased from US$82,004 million in 2019 to US$63,579 million in 2021, indicating a reduction in the company’s asset base or a change in capital allocation strategy. A slight increase to US$69,547 million occurred in 2022, followed by a decrease to US$63,897 million in 2023. These fluctuations may be related to capital expenditure decisions, asset sales, or changes in working capital.

Economic Profit Trend

Economic profit mirrored the volatility of NOPAT. A negative economic profit of US$3,308 million was recorded in 2019, which worsened significantly to US$19,140 million in 2020. It remained negative, though less severe, at US$2,182 million in 2021. A substantial positive economic profit of US$7,601 million was achieved in 2022, but decreased to US$1,215 million in 2023. The correlation between NOPAT and economic profit is strong, as expected, given the calculation methodology. The increasing cost of capital likely contributed to the negative economic profit in 2019 and 2020, and continued to exert downward pressure even during periods of positive NOPAT.

Overall, the financial performance demonstrated considerable variability. While the company achieved positive economic profit in 2022 and 2023, the earlier negative results and the increasing cost of capital warrant continued monitoring. The fluctuations in NOPAT suggest a sensitivity to external factors that should be further investigated.

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 transitioned from negative values to positive values over the period, while invested capital generally decreased before a slight increase in the final year.

Economic Spread Ratio

In 2019, the economic spread ratio was -4.03%. This indicates that the company’s return on invested capital was below its weighted average cost of capital. A dramatic decline was observed in 2020, with the ratio reaching -27.27%, signifying a considerably larger shortfall in returns compared to the cost of capital. The ratio improved to -3.43% in 2021, suggesting a lessening of the gap between returns and cost of capital. A substantial positive shift occurred in 2022, with the ratio reaching 10.93%, indicating that returns exceeded the cost of capital. The ratio moderated in 2023 to 1.90%, still positive but representing a smaller margin of return above the cost of capital.

Economic Profit

Economic profit was negative in 2019, 2020, and 2021, at -3,308 million, -19,140 million, and -2,182 million respectively. This aligns with the negative economic spread ratios observed during those years. A significant turnaround occurred in 2022, with economic profit becoming positive at 7,601 million, coinciding with the positive economic spread ratio. While remaining positive, economic profit decreased to 1,215 million in 2023.

Invested Capital

Invested capital decreased from 82,004 million in 2019 to 63,579 million in 2021. A slight increase was then noted in 2022, reaching 69,547 million, followed by a further decrease to 63,897 million in 2023. The decreasing trend in invested capital may reflect strategic divestitures or reduced capital expenditure, while the fluctuations could be related to market conditions or operational changes.

The period demonstrates a clear shift in financial performance, particularly from 2021 to 2022, with a move from negative economic profit and a substantial negative economic spread to positive values for both metrics. The subsequent moderation in 2023 suggests a potential stabilization after a period of significant improvement.

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 modest positive value by the end of the period. This analysis details the observed trends in economic profit and its relationship to sales and other operating revenues.

Economic Profit

Economic profit began at a negative US$3,308 million in 2019, deteriorated sharply to negative US$19,140 million in 2020, and then improved to negative US$2,182 million in 2021. A substantial positive shift occurred in 2022, reaching US$7,601 million, but this was followed by a decrease to US$1,215 million in 2023. The volatility suggests sensitivity to underlying economic conditions or company-specific operational changes.

Sales and Other Operating Revenues

Sales and other operating revenues decreased considerably from US$123,949 million in 2019 to US$69,779 million in 2020. A recovery was then observed, with revenues increasing to US$119,983 million in 2021 and further to US$177,453 million in 2022. Revenues decreased again in 2023, settling at US$148,379 million. This pattern mirrors, to some extent, the fluctuations in economic profit, indicating a correlation between revenue generation and profitability.

Economic Profit Margin

The economic profit margin was -2.67% in 2019. It experienced a dramatic decrease to -27.43% in 2020, coinciding with the significant drop in sales and the increased negative economic profit. The margin improved to -1.82% in 2021, then rose substantially to 4.28% in 2022, reflecting the positive economic profit. Finally, the margin decreased to 0.82% in 2023. The margin’s movement indicates that while the company achieved positive economic profit in the latter two years, the efficiency of converting revenue into economic profit varied considerably.

The substantial negative margin in 2020 warrants further investigation to understand the factors contributing to the significant decline in profitability relative to revenue. The subsequent improvements in 2022 suggest successful corrective actions or favorable market conditions. However, the decrease in both economic profit and margin in 2023 indicates a potential need to reassess strategies to maintain and improve economic profitability.