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MRC Global (MRC) Q2 Earnings Surpass Estimates, Fall Y/Y

MRC Global Inc. MRC reported disappointing second-quarter 2020 results, wherein both earnings and revenues declined on a year-over-year basis. Reduced customer spending levels (in the oil & gas industry) due to the ill-effects of the coronavirus outbreak adversely impacted results.

The company’s adjusted loss per share in the quarter was 10 cents, surpassing the Zacks Consensus Estimates of a loss per share of 22 cents. The bottom line plummeted from the year-ago reported quarter’s earnings per share of 21 cents.

Revenue Details

In the reported quarter, MRC Global’s revenues totaled $602 million, reflecting a year-over-year decline of 38.8%. The results suffered from lower customer spending due to a decline in commodity prices. On a sequential basis, the company’s revenues decreased 24% on account of weakness across all sectors apart from the U.S. gas utilities sector.

However, the company’s revenues surpassed the Zacks Consensus Estimate of $585 million by 2.9%.

Based on MRC Global’s product line, revenues from carbon pipe, fittings and flanges declined 52% year over year to $153 million, and that from valves, automation, measurement and instrumentation decreased 34.5% to $249 million. Revenues from gas products declined 21.4% to $114 million. Sales for general products fell 42.9% to $56 million, and that for stainless steel alloy pipe and fittings declined 28.6% to $30 million.

Based on the sectors served, revenues from the Upstream production were approximately $134 million, declining 52.8% from the year-ago quarter. Midstream pipeline sales totaled $87 million, down 50% from the year-ago quarter, and Gas utilities sales totaled $205 million, declining 17% year over year. Downstream & industrial sales were $176 million, reflecting a decline of 36.9% year over year.

MRC Global Inc. Price, Consensus and EPS Surprise

 

MRC Global Inc. Price, Consensus and EPS Surprise

MRC Global Inc. price-consensus-eps-surprise-chart | MRC Global Inc. Quote

The company has three reportable segments — the U.S., Canada and International. It noted that the results of the segments suffered from the adverse impacts of the coronavirus outbreak. Further information is given below:

Sales generated from the U.S. segment (representing 78.7% of the company’s second-quarter revenues) totaled $474 million, declining 41% year over year. The results were adversely impacted by weakness in customer spending and a reduction in well completions.

Revenues from the Canada segment (4.7% of the quarter’s revenues) moved down 52% year over year to $28 million due to weakness in upstream production and midstream pipeline businesses.

Sales from the International segment (16.6% of the quarter’s revenues) declined 17% to $100 million. The results were adversely impacted by weakness in upstream production and downstream pipeline businesses. Also, forex woes had adverse impacts of $6 million.

Margin Profile

In the quarter under review, MRC Global’s cost of sales declined 35.4% year over year to $523 million. Adjusted gross profit in the quarter moved down 37.9% year over year to $118 million. Margin increased 30 basis points (bps) to 19.6%. Selling, general and administrative (SG&A) expenses were down 5.3% year over year to $126 million.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) declined 71.7% year over year to $17 million, while adjusted EBITDA margin was down 330 bps at 2.8%. Interest expenses were down 30% year over year at $7 million.

Balance Sheet and Cash Flow

Exiting second-quarter 2020, MRC Global had a cash balance of $19 million, down 32.1% from $28 million at the end of the last reported quarter. Long-term debt balance declined 9.1% sequentially to $470 million.

In the first six months of 2020, the company repaid $460 million borrowings under the revolving credit facilities and $4 million of long-term obligations. However, it raised $389 million through revolving credit facilities.

In the first six months of 2020, the company generated net cash of $84 million from operating activities compared with $8 million generated in the year-ago period. Capital spending totaled $5 million, down 16.7% year over year.

During the quarter, the company used $6 million for paying out dividends and refrained from buying back any shares.

Outlook

Prevailing weakness in the oil & gas industry and unfavorable price (commodity) environment remains concerning for the company. Its cost-saving actions in response to the pandemic are predicted to lower operating costs by more than $100 million in 2020.

Zacks Rank & Stocks to Consider

The company currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks are Griffon Corporation GFF, Danaher Corporation DHR and Macquarie Infrastructure Company MIC. While Griffon and Danaher currently sport a Zacks Rank #1 (Strong Buy), Macquarie carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Griffon delivered an earnings surprise of 21.76%, on average, in the trailing four quarters.

Danaher delivered an earnings surprise of 10.83%, on average, in the trailing four quarters.

Macquarie delivered an earnings surprise of 3.13%, on average, in the trailing four quarters.

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