A month has gone by since the las t earnings report for MRC Global (MRC). Shares have added about 4.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is MRC due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recen t earnings report in order to get a better handle on the important drivers.
MRC Global Q4 Earnings Lag Estimates, Improves Y/Y
MRC Global reported lower-than-expected results for the fourth quarter of 2018, with earnings lagging estimates by 30%. This was its third consecutive quarter of weak results.
The company's adjusted earnings in the reported quarter were 7 cents per share, lagging the Zacks Consensus Estimate of 10 cents. However, the bottom line improved year over year. The company recorded loss of 2 cents per share in the year-ago quarter.
The year-over-year improvement came on the back of sales growth, partially offset by increase in cost of sales and income tax expenses (versus tax benefit recorded in the prior-year quarter).
Healthy Segmental Businesses Drive Revenues
In the reported quarter, MRC Global's revenues totaled $1,009 million, reflecting year-over-year growth of 11.7%. The improvement was driven by the strengthening of the United States, Canada and International businesses. However, the top line lagged the Zacks Consensus Estimate of $1,015 million by 0.58%.
Based on the company's product line, revenues from carbon steel pipe, fittings and flanges grew 4.2% year over year to $324 million while that from valves, automation, measurement and instrumentation increased 22.6% to $407 million, and that from gas products improved 20.4% to $136 million. However, sales for general oilfield products decreased 4% to $96 million and that for stainless steel, and alloy pipe and fittings fell 2.1% to $46 million.
Revenues from the Upstream sector were approximately $339 million, increasing 22.4% from the year-ago quarter. Midstream sales totaled $373 million, roughly 0.5% below the year-ago quarter while Downstream sales totaled $297 million, rising 18.3% year over year.
The company has three reportable segments - the U.S., Canada and International. Information on these three segments for the quarter under review is given below:
Sales generated from U.S. segment totaled $778 million, increasing 8.8% year over year. This was driven by strengthening upstream and downstream businesses, partially offset by weakness in Canada operations.
Revenues from the Canada segment grew 11.3% year over year to $79 million on the back of healthy midstream and upstream businesses. However, weakness in downstream sales affected results.
Sales from the International segment increased 29.9% to $152 million on the back of healthy upstream, midstream and downstream businesses.
For 2018, the company's revenues totaled $4,172 million, increasing 14.4% from the year-ago tally. However, the top line lagged the Zacks Consensus Estimate of $4.18 billion.
Margin Profile Improves
In the quarter under review, MRC Global's cost of sales increased 10% year over year to $838 million. Adjusted gross profit in the quarter increased 21% year over year to $202 million. Margin expanded 150 basis points (bps) to 20%. Selling, general and administrative expenses were flat year over year to $148 million.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 46.5% year over year to $63 million while adjusted EBITDA margin increased 140 bps to 6.2%. Interest expenses increased 42.9% year over year to $10 million. Balance Sheet and Cash Flow
Exiting fourth-quarter 2018, MRC Global had a cash balance of $43 million, up 48.3% from $29 million at the end of the las t report ed quarter. Long-term debt balance decreased 4.9% sequentially to $680 million.
In 2018, the company used net cash of $11 million for operating activities versus $48 million used in the previous year. Capital spending totaled $20 million versus $30 million in the previous year.
During the year, the company used $125 million for repurchasing shares and $24 million for paying dividends.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted -29.59% due to these changes.
Currently, MRC has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of this revision indicates a downward shift. Notably, MRC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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