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MRC Global's Q3 Earnings Disappoint - Analyst Blog

Posted
11/1/2013 1:30:00 PM
By: Zacks.com
Referenced Stocks:FLS;GHM;MRC;MWA

MRC Global Inc. ( MRC ) reported disappointing results for the third quarter of 2013 with year-over-year decline in earnings and revenues. Adjusted earnings per share in the quarter came in at 40 cents, missing the Zacks Consensus Estimate of 44 cents by 9.1%. The adjusted earnings for the quarter also lagged the year-ago earnings of 61 cents by 34.4%.

On a GAAP basis, earnings per share for the quarter were 38 cents, compared with 54 cents in the year-ago quarter. The year-over-year decline in earnings was a result of reduced revenues for the quarter.

Revenues

MRC Global reported 9.5% year-over-year decline in revenues that settled at $1,313.7 million - almost in line with the Zacks Consensus Estimate of $1,314.0 million. The decline was primarily due to a planned reduction in the oil country tubular goods (OCTG) business.

Geographically, MRC Global reported year-over-year decline of revenues in the U.S. to $1.02 billion. The decline was a result of $83.4 million decrease in the OCTG revenues. However, revenues got a boost from the acquisition of Production Specialty Services Inc. and Flow Control Products. In the Canada region, revenues generated was $162.1 million, a decline of 12.7% compared with the year-ago quarter. Lower revenues were the culmination of project sales decline in Northern Alberta's oil sands region, along with weakening of the Canadian dollar. Additionally, reduction in demand in Australia led to an 11.1% drop in the International sales to $136.6 million.

On a sector basis, upstream sales declined 10.0% year over year to $588.1 million, while midstream sales were down 6.6% year over year to $377.3 million. Downstream sales in the quarter were $348.3 million, down 11.5% year over year.

Margins/Costs

Cost of sales in the third quarter went down 8.4% year over year to $1,075.4 million and represented 81.9% of total revenue, up from 80.9% in the year-ago quarter. Selling, general and administrative expenses, as a percentage of total revenue, stood at 12.2%. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) totaled $96.4 million, declining 23.1% year over year.

Balance Sheet

Exiting the third quarter of 2013, cash balance of MRC Global stood at $33.4 million, down from $37.8 million in the previous quarter. Long-term debt, net of current portion, registered a sequential decrease to $1,037.3 million.

Cash Flow

For the nine months ended Sep 30, 2013, MRC Global generated cash from operations of $241.4 million versus $65.8 million in the prior-year period. Capital expenditure incurred in the first nine months of 2013 totaled $14.9 million, versus $21.0 million in the year-ago period.

Outlook

As expected earlier, reduction in the OCTG business as well as lower demand in various regions including Australia and Canada led to lower revenues in the quarter. Expecting these factors to remain unchanged, management has maintained its guidance for 2013. For the year, management anticipates revenues to range within $5.16 billion-$5.30 billion. Adjusted EBITDA is predicted to be within $385 million-$415 million, while earnings per share is expected in the band of $1.65-$1.85.

MRC Global is a leading global distributor of pipe, valves and fittings (PVF) and related products and services to the energy and industrial sectors.

Other Stocks to Consider

MRC Global currently carries a Zacks Rank #4 (Sell). Other stocks in the industry worth considering include Mueller Water Products, Inc. ( MWA ), Flowserve Corp. ( FLS ) and Graham Corp. ( GHM ). All of these carry a Zacks Rank #2 (Buy).



FLOWSERVE CORP (FLS): Free Stock Analysis Report

GRAHAM CORP (GHM): Free Stock Analysis Report

MRC GLOBAL INC (MRC): Free Stock Analysis Report

MUELLER WATER (MWA): Free Stock Analysis Report

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