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Why Is MRC (MRC) Down 26.1% Since Last Earnings Report?

A month has gone by since the last earnings report for MRC Global (MRC). Shares have lost about 26.1% 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 catalysts.

MRC Global Q4 Earnings Beat, Surge Y/Y on Higher Sales

MRC Global reported fourth-quarter 2022 adjusted earnings of 32 cents per share, beating the Zacks Consensus Estimate of 28 cents. The bottom line surged more than 88.3% year over year. Results benefited from higher sales generation and improved margins.

Total revenues of $869 million missed the Zacks Consensus Estimate of $872 million. However, the top line increased approximately 26.7% year over year, owing to growth in gas utilities and downstream, industrial and energy transition (DIET) sectors.

Revenues by Product Line

Based on MRC Global’s product line, revenues from carbon pipe, fittings and flanges increased 37.6% year over year to $278 million. The same from valves, automation, measurement and instrumentation was up 24.5% from the year-ago quarter’s figure to $290 million. Gas product revenues grew 16.5% to $191 million. Sales for general products increased 37.5% to $77 million. The same for stainless steel, alloy pipe and fittings climbed 6.5% to $33 million.

Revenues by Sector

Based on the sectors served, revenues from upstream production were $195 million, up 39% from the year-ago quarter’s level. Midstream pipeline sales totaled $107 million, up 23% from the year-ago quarter’s tally, while sales for gas utilities totaled $319 million, increasing 24% year over year. DIET sales were $248 million, reflecting year-over-year growth of 24%.

Revenues by Segment

Sales generated from the U.S. segment (representing 82.9% of fourth-quarter revenues) totaled $720 million, rising 27% year over year. The results benefited from improvements in DIET, upstream production and midstream pipeline sectors.

Revenues from the Canada segment (5.2% of the quarter’s revenues) moved up 15% year over year to $46 million on the back of strength in the upstream production sector.

Sales from the International segment (11.9% of the quarter’s revenues) increased 29% to $103 million due to strength in the Upstream Production sector due to increased activity in the North Sea and the DIET sector for energy transition projects.

Margin Profile

In the quarter under review, MRC Global’s cost of sales increased 22.8% year over year to $711 million. The adjusted gross profit in the quarter increased 24.3% year over year to $184 million. The adjusted gross margin was 21.2% in the reported quarter compared with 21.6% in the year-ago period. Adjusted selling, general and administrative expenses were up 16% year over year to $123 million. Adjusted EBITDA increased 40.4% year over year to $66 million.

Balance Sheet and Cash Flow

Exiting the fourth quarter, MRC Global had a cash balance of $32 million compared with $48 million at the end of December 2021. Long-term debt, net, increased to $337 million at the end of the fourth quarter compared with $295 million at the end of December 2021.

In 2022, MRC Global used net cash of $20 million from operating activities against $56 million of net cash generated in the year-ago period. Capital spent on purchasing property, plant and equipment were $11 million, up 10% year over year.

In the twelve months of 2022, MRC repurchased shares worth $2 million and paid out dividends totaling $24 million.

Outlook

For 2023, MRC Global anticipates revenues to increase by double-digit percentage. Revenues in gas utilities are predicted to increase by an upper single-digit percentage, DIET is assumed to increase by an upper single-digit percentage, upstream production is projected to rise by the high teens percentage and the midstream pipeline sector is expected to increase by low teens percentage.

On a segmental basis, U.S. sales are predicted to be up by a low double-digit percentage, while Canadian sales are estimated to be up by a low double-digit percentage during 2023. International sales are anticipated to grow by a low double-digit percentage.

Adjusted EBITDA in the ongoing year is anticipated to grow 8% or higher, while the tax rate is expected to be 26-28%. Selling, general and administrative expenses are predicted to increase in the mid-13% range. Cash flow from operations is likely to be $120 million or more, while capital expenditure is envisioned to be $10-$15 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -21.05% due to these changes.

VGM Scores

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. However, 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. 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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