It has been about a month since the last earnings report for MRC Global (MRC). Shares have lost about 9.5% 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 Q2 Earnings Surpass Estimates, Fall Y/Y
MRC Global reported disappointing second-quarter 2020 results, wherein both earnings and revenues declined on a year-over-year basis. Reduced customer spending levels (in the oil & gas industry) due to the ill-effects of the coronavirus outbreak adversely impacted results.
The company’s adjusted loss per share in the quarter was 10 cents, surpassing the Zacks Consensus Estimates of a loss per share of 22 cents. The bottom line plummeted from the year-ago reported quarter’s earnings per share of 21 cents.
In the reported quarter, MRC Global’s revenues totaled $602 million, reflecting a year-over-year decline of 38.8%. The results suffered from lower customer spending due to a decline in commodity prices. On a sequential basis, the company’s revenues decreased 24% on account of weakness across all sectors apart from the U.S. gas utilities sector.
However, the company’s revenues surpassed the Zacks Consensus Estimate of $585 million by 2.9%.
Based on MRC Global’s product line, revenues from carbon pipe, fittings and flanges declined 52% year over year to $153 million, and that from valves, automation, measurement and instrumentation decreased 34.5% to $249 million. Revenues from gas products declined 21.4% to $114 million. Sales for general products fell 42.9% to $56 million, and that for stainless steel alloy pipe and fittings declined 28.6% to $30 million.
Based on the sectors served, revenues from the Upstream production were approximately $134 million, declining 52.8% from the year-ago quarter. Midstream pipeline sales totaled $87 million, down 50% from the year-ago quarter, and Gas utilities sales totaled $205 million, declining 17% year over year. Downstream & industrial sales were $176 million, reflecting a decline of 36.9% year over year.
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 78.7% of the company’s second-quarter revenues) totaled $474 million, declining 41% year over year. The results were adversely impacted by weakness in customer spending and a reduction in well completions.
Revenues from the Canada segment (4.7% of the quarter’s revenues) moved down 52% year over year to $28 million due to weakness in upstream production and midstream pipeline businesses.
Sales from the International segment (16.6% of the quarter’s revenues) declined 17% to $100 million. The results were adversely impacted by weakness in upstream production and downstream pipeline businesses. Also, forex woes had adverse impacts of $6 million.
In the quarter under review, MRC Global’s cost of sales declined 35.4% year over year to $523 million. Adjusted gross profit in the quarter moved down 37.9% year over year to $118 million. Margin increased 30 basis points (bps) to 19.6%. Selling, general and administrative (SG&A) expenses were down 5.3% year over year to $126 million.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) declined 71.7% year over year to $17 million, while adjusted EBITDA margin was down 330 bps at 2.8%. Interest expenses were down 30% year over year at $7 million.
Balance Sheet and Cash Flow
Exiting second-quarter 2020, MRC Global had a cash balance of $19 million, down 32.1% from $28 million at the end of the last reported quarter. Long-term debt balance declined 9.1% sequentially to $470 million.
In the first six months of 2020, the company repaid $460 million borrowings under the revolving credit facilities and $4 million of long-term obligations. However, it raised $389 million through revolving credit facilities.
In the first six months of 2020, the company generated net cash of $84 million from operating activities compared with $8 million generated in the year-ago period. Capital spending totaled $5 million, down 16.7% year over year.
During the quarter, the company used $6 million for paying out dividends and refrained from buying back any shares.
Prevailing weakness in the oil & gas industry and unfavorable price (commodity) environment remains concerning for the company. Its cost-saving actions in response to the pandemic are predicted to lower operating costs by more than $100 million in 2020.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -46.92% due to these changes.
At this time, MRC has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, 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 downward for the stock, and the magnitude of these revisions 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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