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Marathon Petroleum Beats Earnings Estimates; Plans Spin Off of Retail Operations

Oil refiner and marketer Marathon Petroleum Corp. (NYSE: MPC – $63.62) reported third quarter profit that beat expectations but revenue that missed; announced plans to spin off its retail business; and said its long-time CEO plans to retire. Net income rose to $1.10 billion from $737 million in the year-ago period. Excluding non-recurring items, adjusted earnings per share of $1.63 was above the consensus of $1.34. Revenue grew to $31.20 billion from $23.13 billion but was below the Street expectations of $32.74 billion. Separately, the company said it plans to form a special committee to evaluate strategic alternatives, such as ways to maximize value of its midstream earnings and cash flow. In addition, Marathon plans to spin off its gas station and convenience store chain, known as Speedway, by the end of next year, although no details were provided. The Findlay, Ohio-based company, which has been under pressure by multiple activist shareholders in recent weeks, is also planning to review its pipeline business. In addition, Marathon Chief Executive Gary Heminger announced plans to retire, after more than 8 years in the role and 44 years with the company. 

       The Board of Directors maintained its $0.53 quarterly dividend yielding 3.2%. As management continues to evaluate its business model, the future of Marathon as configured is somewhat up in the air. Nonetheless, the issue’s low valuation and dividend yield mitigates downside risk at current levels and the shares can continue to be considered as a holding in a well-diversified aggressive portfolio.

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