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It has been about a month since the last earnings report for MRC Global (MRC). Shares have added about 55.6% 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 Q3 Earnings Beat, Revenues Decline Y/Y
MRC Global reported disappointing third-quarter 2020 results, wherein both earnings and revenues declined on a year-over-year basis. Reduced customer spending levels (in the oil & gas industry) coupled with lower demand stemming from coronavirus outbreak adversely impacted MRC Global’s third-quarter performance.
The company’s adjusted loss per share in the quarter was 10 cents, narrower than the Zacks Consensus Estimate of loss of 18 cents. The bottom line plummeted from the year-ago reported quarter’s earnings per share of 23 cents.
In the reported quarter, MRC Global’s revenues totaled $585 million, reflecting a year-over-year decline of 37.9%. Results suffered from lower customer spending due to a decline in commodity prices triggered by the COVID-19 pandemic. On a sequential basis, the company’s revenues decreased 3% on account of weakness across upstream production and midstream pipeline sectors. However, it was partially offset by robust sales across downstream and the U.S. gas utilities sectors.
The company’s revenues surpassed the Zacks Consensus Estimate of $560 million by 4.5%.
Based on MRC Global’s product line, revenues from carbon pipe, fittings and flanges declined 53.4% year over year to $139 million, and that from valves, automation, measurement and instrumentation decreased 36.5% to $230 million. Revenues from gas products declined 10.9% to $131 million. Sales for general products fell 39.1% to $56 million, and that for stainless steel alloy pipe and fittings declined 32.6% to $29 million.
Based on the sectors served, revenues from the Upstream production were approximately $118 million, declining 58.9% from the year-ago quarter. Midstream pipeline sales totaled $74 million, down 51.9%, and Gas utilities sales totaled $208 million, declining 3.7% year over year. Downstream & industrial sales were $185 million, reflecting a decline of 35.1%.
The company has three reportable segments — the United States, Canada and International. It was 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 United States (representing 79.1% of the company’s third-quarter revenues) totaled $463 million, declining 39.3% year over year. The results were adversely impacted by sluggish sales across all sectors coupled with a reduction in well completions and lower customer spending due to the COVID-19 crisis.
Revenues from Canada (4.6%) moved down 52.6% year over year to $27 million due to weakness in upstream production sector.
Sales from International (16.3%) declined 22.1% to $95 million. The results were adversely impacted by weakness in upstream production and downstream pipeline businesses. Nevertheless, strong foreign exchange favorably impacted sales by $2 million.
In the quarter under review, MRC Global’s cost of sales declined 38.7% year over year to $471 million. Adjusted gross profit in the quarter moved down 38.8% to $115 million. Margin decreased 30 basis points (bps) to 19.7%. Selling, general and administrative (SG&A) expenses were down 27% year over year to $100 million.
Adjusted EBITDA declined 61.3% year over year to $24 million, while adjusted EBITDA margin was down 250 bps to 4.1%. Interest expenses were down 30% to $7 million.
Balance Sheet and Cash Flow
Exiting third-quarter 2020, MRC Global had a cash balance of $40 million, up 110.5% from $19 million at the end of the last reported quarter. Long-term debt balance declined 13.8% sequentially to $405 million.
In the first nine months of 2020, the company repaid $655 million borrowings under the revolving credit facilities and $5 million of long-term obligations. However, it raised $519 million through revolving credit facilities.
In the first nine months of 2020, the company generated net cash of $178 million from operating activities compared with $134 million in the year-ago period. Capital spending totaled $8 million, down 33.3% year over year.
During the quarter, the company used $6 million for paying out dividends and repurchased 24.2 million shares at an average price of $15.48 per share.
Owing to uncertainties triggered by the COVID-19 turmoil, MRC Global is wary about the prevailing weakness in the oil & gas industry and unfavorable price (commodity) environment. The company expects to generate more than $220 million of cash from operations and intends to close six more facilities in the fourth quarter, bringing the tally to 28. Also, debt reduction remains MRC Global’s top priority. Its cost-saving actions in response to the pandemic are predicted to lower operating costs by more than $110 million in 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 60.28% due to these changes.
At this time, MRC has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile 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.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, 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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