A month has gone by since the last earnings report for MRC Global Inc. (MRC - Free Report) . Shares have lost about 14.2% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Fourth-Quarter 2016 Highlights
MRC Global Inc. reported weaker-than-expected fourth-quarter 2016 results. Quarterly results were dismal due to the challenging conditions prevailing in the oil and gas market.
Eliminating the impact of after-tax restructuring and severance expenses, quarterly loss of $0.18 per share was wider than the Zacks Consensus Estimate of a loss of $0.11. The company had reported adjusted earnings of $0.12 per share in the year-ago period.
Full-year 2016 adjusted loss of $1.10 per share was narrower than the adjusted loss of $3.38 per share recorded in the prior-year period.
Revenues: MRC Global’s revenues plunged 25.6% year over year to $719 million. The top line also fell short of the Zacks Consensus Estimate of $752 million.
For full-year 2016, revenues came in at $3,041 million, lower than $4,529 million generated for 2015.
The company’s top-line performance deteriorated due to poor segmental performance.
Performance of the Segments
MRC Global’s fourth-quarter sales in the U.S. totaled $550 million, down 29% year over year. The decline was mainly stemmed by lower sales accrued by the company’s upstream, midstream and downstream sectors.
International sales came in at $114 million, down 7% year over year, due to shrinking upstream sales.
Revenues from Canada were $55 million, down 17% year over year. The downside was stemmed by lower upstream and midstream sales.
Revenues by Sector
For the reported quarter, upstream sales slumped 41% year over year to $218 million. Weak customer activity resulted in the year-over-year deterioration.
Midstream sales summed $268 million in the fourth quarter, down 15% year over year. The company’s midstream sales dropped due to soft demand accrued from the gas utility and transmission customers.
The company’s fourth-quarter downstream sales were down 17% year over year to $233 million. The year-over-year decline was primarily attributable to poor project activity.
Margins & Costs: Adjusted gross profit margin was 18.5%, up from 17.7% in the year-ago quarter. Selling, general and administrative expenses were $128 million as against $146 million in the prior-year quarter. Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) totaled $17 million compared with $34 million in the year-earlier quarter.
For full-year 2016, adjusted gross profit margin came in at 17.2%, down 80 basis points (bps) year over year.
Full-year 2016 adjusted EBITDA of $75 million was way below than $235 million recorded at the end of 2015.
Balance Sheet & Cash Flow: MRC Global exited the fourth quarter with cash balance of $109 million as against $69 million as of Dec 31, 2015. At the end of the quarter, the company’s long-term debt, net of current portion, descended to $406 million from $511 million at year-end 2015.
At the end of 2016, MRC Global generated $253 million of cash from operating activities compared with $690 million on Dec 31, 2015. Total capital expenditure was $33 million, down 15.3% year over year.
During fourth-quarter 2016, MRC Global repurchased its common stock worth $7 million, at an average price of $15.94 per share.
Outlook: Despite unfavorable and tepid market conditions, MRC Global anticipates to improve its business on the back of superior customer relationships, working capital optimization, operational expense management and balance sheet strengthening.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed an upward trend in fresh estimates. There have been three revisions higher for the current quarter compared to two lower. In the past month, the consensus estimate has shifted lower by 5% due to these changes.
At this time, MRC Global's stock has a nice Growth Score of 'B', however its Momentum is doing a bit better with an 'A'. However, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% 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.
Based on our scores, the stock is primarily suitable for momentum investors while also being suitable for those looking for growth and to a lesser degree value.
While estimates have been broadly trending upward for the stock, the magnitude of these revisions has been net zero. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.