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MRC Global (MRC) Q2 Earnings Miss, Up Y/Y on Sales Growth

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MRC Global Inc. (MRC - Free Report) reported lower-than-expected results for the second quarter of 2018, with earnings lagging estimates by 22.7%. This poor performance followed an earnings beat of 44.4% recorded in the first quarter of 2018.

Adjusted earnings in the reported quarter were 17 cents per share, lagging the Zacks Consensus Estimate of 22 cents. Also, the bottom line improved over break-even results in the year-ago quarter.

Segmental Strength Drives Revenues

In the reported quarter, MRC Global’s revenues totaled $1,082 million, reflecting year-over-year growth of 17.4%. The improvement was driven by strengthening demand in all the end markets. Also, the top line surpassed the Zacks Consensus Estimate of $1,076 million by roughly 0.6%.

Based on the company’s product line, revenues from carbon steel pipe, fittings and flanges grew 26.2% year over year to $390 million, while that from valves, automation, measurement and instrumentation increased 14.7% to $375 million, and that from gas products improved 17.6% to $147 million. Moreover, sales from general oilfield products increased 9% to $121 million. However, sales from stainless steel, and alloy pipe and fittings fell 2% to $49 million.

Revenues from the Upstream sector were approximately $307 million, increasing 19% from the year-ago quarter. Midstream sales totaled $472 million, roughly 12.4% from the year-ago quarter and that from Downstream totaled $303 million, rising 24.2% year over year.

The company has three reportable segments — U.S., Canada and International. Information on these three segments for the quarter under review is given below:

Sales generated from the United States segment totaled $878 million, increasing 21.9% year over year. The growth was driven by strengthening upstream, midstream and downstream businesses.

Revenues from Canada segment grew 15.9% year over year to $80 million on the back of healthy downstream and upstream businesses. However, weakness in midstream sales impacted results adversely.

Sales from the International segment decreased 6.8% to $124 million due to the weakness in midstream business.

Margin Profile Improves

In the quarter under review, MRC Global’s cost of sales increased 17.1% year over year to $905 million. Adjusted gross margin in the reported quarter grew 80 basis points (bps) to 19.3%. Selling, general and administrative expenses grew 3% year over year to approximately $136 million.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 77.3% year over year to $78 million while adjusted EBITDA margin increased 240 bps to 7.2%. Interest expenses increased $10 million.

Balance Sheet and Cash Flow

Exiting second-quarter 2018, MRC Global had a cash balance of $31 million, down 31.1% from $45 million at the end of the last reported quarter. Long-term debt balance increased 10.9%, sequentially, to $704 million.

In the first half of 2018, the company used net cash of $139 million for its operating activities, above $24 million used in the year-ago comparable quarter. Capital spending totaled $9 million versus $14 million in the year-ago period.

During the second quarter, the company repurchased common shares worth $20 million, completing its $100-million buyback program, authorized in October 2017.

Outlook

For 2018, MRC Global expects the improving macroeconomic conditions across all the end markets to boost its revenues and profitability in the near term. The company also remains on track to improve shareholders’ remuneration.

MRC Global Inc. Price, Consensus and EPS Surprise
 

MRC Global Inc. Price, Consensus and EPS Surprise | MRC Global Inc. Quote

Zacks Rank & Stocks to Consider

With a market capitalization of approximately $2 billion, MRC Global currently sports a Zacks Rank #1 (Strong Buy).

Other top-ranked stocks worth considering in the Zacks Industrial Products sector are Altra Industrial Motion Corp. (AIMC - Free Report) , Chart Industries, Inc. (GTLS - Free Report) and DXP Enterprises, Inc. (DXPE - Free Report) . While both Altra Industrial Motion and Chart Industries sport a Zacks Rank #1, DXP Enterprises carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for each of these stocks improved for the current year and the next year. Also, the average positive earnings surprise for the last four quarters was 4.01% for Altra Industrial Motion, 29.36% for Chart Industries and 70.97% for DXP Enterprises.

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