Update Marathon Petroleum: Was that a miss?

Update February 3: Shares of refiner Marathon Petroleum (MPC) are off a huge 8.89% as of 11:30 a.m. New York time on a daunting fourth quarter earnings miss reported this morning. That is, if it is actually a miss. Marathon reported fourth quarter earnings per share of 35 cents before the market opened today, February 3. That’s far below the 69 cents a share Wall Street consensus estimate. But reported earnings included a one-time $345 million pre-tax charge (44 cents a share) to mark the value of oil held in inventory down to cost or the current market price. (If you buy crude oil today and put it in a tank to refine it tomorrow, the value of that oil in storage fluctuates with the price of oil on the market. Accounting rules say a company has to mark down the value of that inventory to market prices when it believes that the impairment to value is more than temporary. There’s a lot of discretion in that judgment but Marathon has decided that oil prices aren’t about to zoom back up tomorrow. Of course, if/when they do Marathon will be able to show a profit on the new value of any inventory purchased at low prices.) If you add this one time charge–which isn’t a cash charge–back into earnings, the fourth quarter results show earnings per share of 79 cents, above the 69 cents share consensus. Which is why when earnings were announced this morning, sources such as the Associated Press, Zacks, and Briefing.com wrote headlines that said Marathon had exceeded estimates by 10 cents a share while Reuters on the other side led with a headline touting 77% drop in earnings. I’d go with the “exceeded estimates” version today. With the recent volatility in oil prices, I think the market tends to sell down anything related to energy–and then ask questions later. (And my reasoning does have some connection to the fact that the Reuters story seems to be sourced from India and I have to question the quality of the editing.) Other than the big pre-tax charge I don’t see anything troubling in the operating results. Margins for the gasoline sold at the company’s recently acquired Speedway gas station/retail chain did fall in the quarter along with the price of gas but for the year Speedway beat its 2014 results. Refining results were weaker than in the fourth quarter of 2014 but that period set records so that’s a tough comparison rather than an indicator of anything wrong at the company. The next dividend from Marathon of 32 cents a share has a record date of February 17. The company did cut its quarterly dividend to 32 cents from 50 cents in the middle of 2015, but at the current annual rate of $1.28 a share (four times the current 32 cent rate), today the stock is yielding 3.5%.