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MRC Global (MRC)

Q1 2017 Earnings Conference Call

May 05, 2017 10:00 AM ET

Executives

Monica Broughton - Head of Investor Relations

Andrew Lane - President and Chief Executive Officer

James Braun - Executive Vice President and CFO

Analysts

Matt Duncan - Stephens Inc.

Vaibhav Vaishnav - Cowen & Company

Walter Liptak - Seaport Global

Joe Gibney - Capital One

David Manthey - Robert W. Baird

Presentation

Operator

Greetings and welcome to MRC Global's 2016 First Quarter Conference Call. At this time, all participants are in a listen-only mode. An interactive question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Ms. Monica Broughton, Investor Relations. Thank you. You may begin.

Monica Broughton

Thank you, and good morning, everyone. Welcome to the MRC Global first quarter 2017 earnings conference call and webcast. We appreciate you joining us. On the call today, we have Andrew Lane, President and CEO; and Jim Braun, Executive Vice President and CFO.

There will be a replay of today's call available by webcast on our website, mrcglobal.com, as well as by phone until May 19, 2017. The dial-in information is in yesterday's release. We expect to file our first quarter 2017 report on Form 10-Q later today, which will also be available on our website.

Please note that the information reported on this call speaks only as of today May 5, 2017, and therefore, you are advised that any information may no longer be accurate at the time of replay. In our remarks today, we will discuss adjusted gross profit percentage, adjusted EBITDA, and adjusted EBITDA margins. You are encouraged to read our earnings release and securities filings to learn more about our use of these non-GAAP measures and to see a reconciliation of these measures to the related GAAP items.

In addition, the comments made by the management team of MRC Global during this call may contain forward-looking statements within the meaning of the United States Federal Securities Laws. These forward-looking statements reflect the current views of the management of MRC Global; however, MRC Global's actual results could differ materially from those expressed today. You are encouraged to read the Company's SEC filings for a more in-depth review of the risk factors concerning these forward-looking statements.

And now, I would like to turn the call over to our CEO, Mr. Andrew Lane.

Andrew Lane

Thank you, Monica. Good morning and thank you for joining us today and for your interest in MRC Global. Today, I will review Company performance, highlights, and then I’ll turn over the call to our CFO, Jim Braun for more a detailed review of the financial results. I’ll then finish with our current outlook.

We are encourage by the improve market conditions and remain focused on growing our business the first quarter of 2017 revenue of $862 million was 20% higher than the fourth quarter of last year which exceeded our expectations. All-in market sector showed sequential growth with the strongest performance in our midstream sector.

First quarter of 2017 was the highest quarterly revenue since the fourth quarter of 2015 and March 2017 was the highest monthly revenue since December of 2015. Compared to the same quarter a year ago, revenue was up 10% driven by midstream and upstream.

Midstream increased 33% and was higher in both sub sectors transmission and gathering as well as gas utilities. We have several projects ongoing with a large transmission customer driving a portion of the increase.

Orders related to these projects many of which are in backlog are expected to deliver throughout the year. We have also seen increase work in the gas utility sub sector and a pickup with several other transmission and gathering customers. This is related to an increase in market activity driven in part by the approval of pipeline infrastructure projects.

Our upstream business also performed well. our Canadian upstream business increased 30% over the first quarter of last year exceeding our expectations. Due to increase market activity, as operators have shift it's spend from heavy oil projects to more conventional oil drilling work.

We also experience growth in the U.S. upstream business as drilling activity has increased since last summer. Which is resulting in an increase in well completions. Excluding OCTG revenue earned in the first quarter of last year. Our U.S. upstream business increased 24% in the first quarter compared to the same quarter a year ago.

Our downstream sector was lower quarter-over-quarter due to the rolling off of a major petro-chemical projects. However, we saw increased refining turnaround activity at several customers which contributed to a 6% sequential increase in our downstream sector.

Adjusted gross profit for the first quarter of 2017 was $157 million or 18.2% of revenue, as compared to $147 million and 18.7% for the same period in 2016. This is in line with our guidance and is a function of the higher mix of midstream project revenue in the first quarter.

We broke even with zero net income attributable to common share holders for the first quarter of 2017, as compared to a net loss attributable to common shareholders of $14 million or $0.14 per diluted share for the same period last year, which included after tax charges of the severance and restructuring of $4 million or $0.04 per diluted share.

The renewal comparable charges this quarter. We continue to generate cash in the first quarter providing $22 million of cash from operations. We expect to generate modest operating cash in 2017, as we plan to shift our capital allocation to growth. Investing more in working capital support this growth, which we will see later in the year.

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