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MRC Global Inc. (MRC)

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MRC Global, Inc. (MRC)

Q1 2018 Earnings Call

May 03, 2018 10:00 am ET

Executives

Monica Schafer Broughton - MRC Global, Inc.

Andrew R. Lane - MRC Global, Inc.

James E. Braun - MRC Global, Inc.

Analysts

Sean C. Meakim - JPMorgan Securities LLC

Matt Duncan - Stephens, Inc.

Vaibhav Vaishnav - Cowen & Co. LLC

Nathan Hardie Jones - Stifel, Nicolaus & Co., Inc.

Walter Scott Liptak - Seaport Global Securities LLC

David J. Manthey - Robert W. Baird & Co., Inc.

Presentation

Operator

Greetings and welcome to the MRC Global First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Monica Broughton, Investor Relations. Thank you. You may begin.

Monica Schafer Broughton - MRC Global, Inc.

Thank you and good morning, everyone. Welcome to the MRC Global first quarter 2018 earnings conference call and webcast. We appreciate you joining us today. On the call, 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 17, 2018. The dial-in information is in yesterday's release. We expect to file our first quarter 2018 report on Form 10-K 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 3, 2018, and therefore, you are advised that information may no longer be accurate as of the time of replay.

In our remarks today, we will discuss adjusted gross profit, adjusted gross profit percentage, adjusted EBITDA, and adjusted EBITDA margin. You are encouraged to read our earnings release and securities filings to learn more about the use of these non-GAAP measures and to see a reconciliation of these measures to the related GAAP items, all of which can be found on our website.

In addition, the comments made by the management 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'd like to turn the call over to our CEO, Mr. Andrew Lane.

Andrew R. Lane - MRC Global, Inc.

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 a more detailed review of the financial results. I'll then finish with our updated outlook for 2018.

2018 has started strong with first quarter revenue just over $1 billion; it's the first quarter in the last 10 quarters that we have reported quarterly revenue over $1 billion. Revenue was up 17% over the first quarter of 2017 and up 12% sequentially from the last quarter. Importantly, adjusted gross profit improved to 19.1% in the first quarter. Adjusted EBITDA came in at $59 million or 5.8% of sales, resulting in strong incremental EBITDA of 16% for the first quarter 2018 over the same quarter a year ago.

Diluted earnings per share were $0.13 in the first quarter compared to breakeven earnings per share a year ago. Contract wins and extensions have benefited the quarter, as all our segments and end-markets experienced growth. The macroeconomic conditions for our end-markets are all very positive and continue to improve with customers spending higher than last year were concentrated in areas where we operate. There are several inflationary trends on our products that I'd like to discuss. Recently, Section 232 tariffs targeting steel imports and related quota measures have been put in place. In some cases, steel producing countries have been granted exemptions from the tariffs. In addition anti-dumping suits in certain product categories have been filed recently.

Our costs have also been influenced by various other inflationary pressures, mostly raw material cost increases. Transportation and freight costs have also increased due to higher demand, regulation, and limited driver resources. The market continues to adjust to these measures as there are many moving parts in our global supply chain and many of these elements continue to evolve.

In fact on Monday of this week the temporary exemptions for certain countries was extended another month. Nevertheless, product (00:04:30) completion is generally a positive for us as our cost plus contracts allow for price increases to be passed through. Transportation and freight costs are also structured as a pass-through cost in our customer contracts. While the new pricing can take a quarter or two to be realized, we've begun to see margin improvement in the first quarter from higher inflation and we expect that will continue.

Carbon pipe is typically our product viewed with (00:04:58) the most price volatility, but given the various inflationary pressures, all our products are experiencing some level of inflation. Some line pipe sizes and types have seen a 25% plus increase. Carbon fittings and flanges, stainless products and valves, all are experiencing price increases.

Based on the current market outlook, we expect the trend to continue for certain sizes and types. In light of these conditions, we have been strategically building the inventory not only for expected increase in demand, but also to get ahead of these price increases and to have product available for our customers when quotes and additional demand extend lead times.

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