Top 3 US refiners return $5.2 billion to shareholders in Q3 despite profit slide

By Nicole Jao

NEW YORK, Nov 14 (Reuters) - Top U.S. refiners kept focused on shareholder returns with hefty stock buybacks and dividends in the third quarter even though profits fell due to weakening fuel demand and refining margins.

Margins for gasoline, diesel and other products narrowed sharply from record levels hit after Russia invaded Ukraine in 2022. Fuel demand has softened since then, and new refining capacity has come online.

In the third quarter, the average earnings per share for U.S. oil refiners fell to 25 cents from $4.75 in the same quarter a year ago and $4.85 in 2022, according to Reuters calculations.

Combined, the three largest U.S. refiners returned more than $5.2 billion to shareholders through stock repurchases and dividends during the third quarter, Reuters calculations show, down only slightly from $5.9 billion in the previous quarter.

Those companies rewarded shareholders with $6.5 billion in the same quarter a year ago and $6.81 billion two years ago.

"While large refiners were not immune to the downturn in the refining market, they were still able to generate positive cash flows," Scotiabank analyst Paul Cheng said.

Marathon paid out $3 billion to its shareholders and boosted its share repurchase plan by $5 billion. The Findlay, Ohio-based refiner has approximately $8.5 billion available under its share buyback authorizations.

"We are committed to leading our peers in capital returns through all parts of the cycle," Chief Executive Officer Maryann Mannen told analysts during a conference call this month. While volatility could continue, the company remains constructive on the long term outlook, Mannen said.

Year-to-date, shares of Valero are up 5.7% while Marathon is up about 6% and Phillips 66 is down 3.58%. That compares with the S&P 500 energy sector's .SPNY 13.03% increase so far this year.

Weaker gasoline and diesel cracks in the third quarter weighed on refiners' profitability, said Matthew Blair, managing director at TPH&Co. Still, most companies kept their promises to reward their shareholders, Blair said.

During the quarter, the U.S. gasoline crack spread RBc1-CLc1 fell to $11.73 a barrel in September, the lowest since November 2023. The diesel crack spread HOc1-CLc1 traded at $17.98 a barrel in September, its lowest since July 2021.

Valero Energy returned $907 million to stockholders, a higher payout ratio than the same quarter a year ago, despite an 86% slump in third-quarter profit.

The refiner's financial results reflected a period of heavy maintenance during a weak margin environment, Valero Chief Executive Lane Riggs said.

Looking ahead, he added, refining margins should find support in export demand from Latin America and low product inventories through year end.

Phillips 66 returned $1.3 billion to shareholders in the quarter even as costs, including those related to the upcoming closure of its Los Angeles refinery, put a dent in earnings. The Houston-based refiner reported earnings tumbled to $346 million in the third quarter from $2.1 billion a year earlier.

Many analysts expect margins to remain weak throughout the fourth quarter with some refiners cutting back on share repurchases.

"The fourth quarter is shaping up to be a pretty challenging one," said TPH&Co's Blair, adding that soft gasoline and distillate margins will continue to weigh on profitability.

"Naturally as the earnings and cash flow come off, your buyback should come off," Scotiabank's Cheng said.

(Reporting by Nicole Jao; Editing by Liz Hampton and David Gregorio)

((Nicole.Jao@thomsonreuters.com ; +1 646 540 2216))