It has been about a month since the last earnings report for MRC Global (MRC - Free Report) . Shares have lost about 6.2% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is MRC 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.
Second-Quarter 2018 Highlights
MRC Global Inc. 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 by the company.
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.
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.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -16.62% due to these changes.
At this time, MRC has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
The company's stock is suitable solely for growth based on our style scores.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, MRC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.