MRC Global (MRC) Q4 Earnings Lag Estimates, Improves Y/Y

MRC Global Inc. (NYSE:MRC) reported lower-than-expected results for the fourth quarter of 2018, with earnings lagging estimates by 30%. This was its third consecutive quarter of weak results.

The company’s adjusted earnings in the reported quarter were 7 cents per share, lagging the Zacks Consensus Estimate of 10 cents. However, the bottom line improved year over year. The company recorded loss of 2 cents per share in the year-ago quarter.

The year-over-year improvement came on the back of sales growth, partially offset by increase in cost of sales and income tax expenses (versus tax benefit recorded in the prior-year quarter).

Healthy Segmental Businesses Drive Revenues

In the reported quarter, MRC Global’s revenues totaled $1,009 million, reflecting year-over-year growth of 11.7%. The improvement was driven by the strengthening of the United States, Canada and International businesses. However, the top line lagged the Zacks Consensus Estimate of $1,015 million by 0.58%.

Based on the company’s product line, revenues from carbon steel pipe, fittings and flanges grew 4.2% year over year to $324 million while that from valves, automation, measurement and instrumentation increased 22.6% to $407 million, and that from gas products improved 20.4% to $136 million. However, sales for general oilfield products decreased 4% to $96 million and that for stainless steel, and alloy pipe and fittings fell 2.1% to $46 million.

Revenues from the Upstream sector were approximately $339 million, increasing 22.4% from the year-ago quarter. Midstream sales totaled $373 million, roughly 0.5% below the year-ago quarter while Downstream sales totaled $297 million, rising 18.3% year over year.

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

Sales generated from U.S. segment totaled $778 million, increasing 8.8% year over year. This was driven by strengthening upstream and downstream businesses, partially offset by weakness in Canada operations.

Revenues from the Canada segment grew 11.3% year over year to $79 million on the back of healthy midstream and upstream businesses. However, weakness in downstream sales affected results.

Sales from the International segment increased 29.9% to $152 million on the back of healthy upstream, midstream and downstream businesses.

For 2018, the company’s revenues totaled $4,172 million, increasing 14.4% from the year-ago tally. However, the top line lagged the Zacks Consensus Estimate of $4.18 billion.

Margin Profile Improves

In the quarter under review, MRC Global’s cost of sales increased 10% year over year to $838 million. Adjusted gross profit in the quarter increased 21% year over year to $202 million. Margin expanded 150 basis points (bps) to 20%. Selling, general and administrative expenses were flat year over year to $148 million.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 46.5% year over year to $63 million while adjusted EBITDA margin increased 140 bps to 6.2%. Interest expenses increased 42.9% year over year to $10 million.

Balance Sheet and Cash Flow

Exiting fourth-quarter 2018, MRC Global had a cash balance of $43 million, up 48.3% from $29 million at the end of the last reported quarter. Long-term debt balance decreased 4.9% sequentially to $680 million.

In 2018, the company used net cash of $11 million for operating activities versus $48 million used in the previous year. Capital spending totaled $20 million versus $30 million in the previous year.

During the year, the company used $125 million for repurchasing shares and $24 million for paying dividends.

MRC Global Inc. Price, Consensus and EPS Surprise