MRC Global (MRC) Incurs Wider-than-Expected Loss In Q2

Renowned energy equipment and services provider MRC Global Inc.’s (NYSE:MRC) posted second-quarter 2016 adjusted loss of 24 cents per share, substantially wider than the Zacks Consensus Estimate of a loss of 14 cents. The company had reported diluted earnings of 15 cents per share in the year-ago comparable period.

Revenues

MRC Global’s revenues decreased 37.7% year over year to $746 million. The year-over-year decline was primarily attributable to reduced customer spending across all sectors and segments of the company due to weak natural gas and oil prices.

However, the top line narrowly surpassed the Zacks Consensus Estimate of $744 million.

We note that unfavorable conditions in the energy market and a stronger U.S. dollar had largely weighed over the company’s quarterly results.

Performance of the Segments

MRC Global’s second-quarter sales in the U.S. totaled $551 million, down 42% year over year. The decline mainly stemmed from weak customer spending in all three sectors of the company.

International sales were $141 million, down 14% year over year. Lower project-related activities and deferral in the repair & maintenance and operational expenditure in Norway and Australia led to the decline in revenues. Moreover, a stronger U.S. dollar hurt the segmental revenues.

Revenues from Canada declined 31% year over year to $54 million due to devaluation of Canadian dollar with respect to the U.S. currency.

Revenues by Sector

For the second quarter, upstream sales plunged 51% year over year to $211 million. Weak customer activity resulted in the year-over-year deterioration.

Midstream sales totaled $292 million in the second quarter, down 30% year over year. The company’s midstream sales decreased due to soft demand from gas utility and transmission customers.

The company’s second-quarter downstream sales plummeted 30% year over year to $243 million. The year-over-year decline was primarily attributable to poor project activity.

Margins & Costs

Adjusted gross profit margin was 18.8%, marginally up from 17.6% in the year-ago quarter. Selling, general and administrative expenses were $135 million as against $159 million a year ago.

Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) totaled $15 million compared with $63 million in the prior-year quarter.

Balance Sheet & Cash Flow

MRC Global exited the second quarter with cash balance of $167 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, decreased to $508 million from $511 million at year-end 2015.

In the second quarter, MRC Global generated $148 million of cash from operating activities compared with $277 million in the prior-year quarter. Total capital expenditure was $14 million as against $13 million at the end of second-quarter 2015.

Outlook

Despite unfavorable market conditions, MRC Global expects to improve its business on the back of superior customer relationships, working capital optimization, operational expense management and balance sheet strengthening.

As of Aug 2, 2016 MRC Global closed the trading session at $12.49 per share. However, it remains to be seen how the stock performs after posting the second-quarter result announcement.

Stocks to Consider

MRC Global presently carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the industry include AO Smith Corp. (NYSE:AOS) , Astec Industries, Inc. (NASDAQ:ASTE) and Avery Dennison Corporation (NYSE:AVY) . All the three companies presently hold a Zacks Rank #2 (Buy).

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