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MRC (MRC) Up 18% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for MRC Global (MRC). Shares have added about 18% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is MRC due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

MRC Global Reports Q1 Loss, Beats Revenue Estimates

MRC Global reported better-than-expected first-quarter 2021 results. Its bottom line surpassed estimates by 22.2%, while sales exceeded the same by 8%. Notably, the quarter’s earnings beat represents the fifth consecutive quarter of impressive results. Reduced customer spending due to the pandemic adversely impacted earnings.

The company reported an adjusted loss of 7 cents per share in the quarter against the year-ago earnings of 4 cents. The Zacks Consensus Estimate was pegged at a loss of 9 cents.

Revenue Details

In the reported quarter, MRC Global’s revenues totaled $609 million, reflecting a year-over-year decline of 23.3%. The results suffered from weakness across all segments, product lines and sectors served. It must be noted here that only gas utilities’ sales expanded on a year-over-year basis in the quarter.

However, the company’s revenues surpassed the Zacks Consensus Estimate of $564 million.

Based on MRC Global’s product line, revenues from carbon pipe, fittings and flanges declined 30.2% year over year to $150 million, and that from valves, automation, measurement and instrumentation decreased 25.4% to $241 million, while that from gas products were relatively flat at $134 million. Sales for general products fell 35.3% to $55 million, and that for stainless steel, and alloy pipe and fittings declined 21.6% to $29 million.

Based on the sectors served, revenues from the Upstream production were approximately $127 million, declining 42.7% from the year-ago quarter. Midstream pipeline sales totaled $78 million, down 34.5%, and Gas utilities sales totaled $210 million, increasing 4% year over year. Downstream & industrial sales were $194 million, reflecting a decline of 22.7%.

The company has three reportable segments — the U.S., Canada and International. It noted that the results of the segments suffered from the adverse impacts of the coronavirus outbreak. Further information is given below:

Sales generated from the U.S. segment (representing 79.5% of the company’s first-quarter revenues) totaled $484 million, declining 24% year over year. The results were adversely impacted by weakness in spending in the downstream & industrial, upstream production, and midstream pipeline sectors. However, market share gains and customers’ increasing activity levels in the Gas utilities sector boosted results.

Revenues from the Canada segment (5.3% of the quarter’s revenues) moved down 36% year over year to $32 million due to the pandemic-related weakness in the upstream production sector.

Sales from the International segment (15.2% of the quarter’s revenues) declined 12% to $93 million. The results were adversely impacted by weakness in customer spending. However, foreign currency translation had a favorable impact on results.

Margin Profile

In the quarter under review, MRC Global’s cost of sales declined 21.7% year over year to $506 million. Adjusted gross profit in the quarter moved down 24.8% to $118 million. Margin was 19.4% in the reported quarter compared with 19.8% in the year-ago quarter. Adjusted selling, general and administrative expenses were down 22.2% to $98 million.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) declined 29.4% year over year to $24 million, while adjusted EBITDA margin was down 40 basis points to 3.9%. Interest expenses declined 25% year over year to $6 million.

Balance Sheet and Cash Flow

Exiting first-quarter 2021, MRC Global’s cash balance improved to $132 million from the previous quarter’s balance of $119 million. Long-term debt grew 0.8% sequentially to $382 million.

Notably, the company repaid $2 million borrowings under the revolving credit facilities and $1 million of long-term obligations in the year. However, it raised $2 million through revolving credit facilities.

In the first three months of 2021, the company generated net cash of $24 million from operating activities, down 35.1% from the year-ago period. Capital spending totaled $2 million, flat year over year.

During the first three months of 2021, the company used $6 million for paying out dividends.

Outlook

MRC Global believes that healthy liquidity, improvement in the end markets and favorable cost structure will be beneficial in the quarters ahead.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month. The consensus estimate has shifted 110% due to these changes.

VGM Scores

Currently, MRC has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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.

Outlook

MRC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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