Renowned energy equipment and services company MRC Global Inc. MRC reported mixed second-quarter 2015 results. Lower consumer demand and poor commodity market conditions seemed to have offset the benefits of the company’s strategic cost-saving and debt-reduction programs.
Adjusted diluted earnings per share (EPS) came in at 22 cents, down 47.6% year over year. However, the bottom line exceeded the Zacks Consensus Estimate of 16 cents by 37.5%.
Revenues
MRC Global’s revenues decreased about 20% year over year to $1,198.1 million, and missed the Zacks Consensus Estimate of $1,200 million. Quarterly revenues were affected by lower customer demand and unfavorable commodity market conditions.
Segment Performance
MRC Global’s U.S. sales for second-quarter 2015 totaled $956.3 million, down 14.3% year over year. The decline was primarily triggered by weak customer spending in the upstream sector.
International sales aggregated $164.2 million, down 29.1% year over year. Lower consumer demand from Norway, Australia and the U.K. were primarily responsible for the downfall in sales.
The company’s top-line results for Canada fell 48.3% year over year to $77.6 million, hit by a strong U.S. dollar and lower upstream business.
Revenues by Sector
For second-quarter 2015, upstream sales were $434.7 million, down 37.9% year over year and accounting for 36% of gross revenue. Upstream sales were low due to dwindling customer demand.
Midstream sales totaled $418.7 million in the second quarter, representing 35% of total revenue. Sales stood approximately flat year over year.
The company’s second-quarter downstream sales fell 8.6% year over year to $344.7 million, accounting for 29% of total revenue. Poor sales from the company’s Australian and European business led to the year-over-year fall in downstream sales.
Margins & Costs
Adjusted gross profit margin was 17.6%, down from 19% in the year-ago quarter. Selling, general and administrative expenses were $158.9 million, down approximately 14.2% from the year-ago value of $185.3 million. Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) totaled $63.2 million, down from $106.2 million in the prior-year quarter.
Finally, SG&A expenses fell 14.2% year over year to $158.9 million during the quarter, highlighting the company’s aggressive cost reduction efforts. This includes job cuts, of which 180 headcount reductions took place in the quarter under review.
Balance Sheet & Cash Flow
Exiting second-quarter 2015, MRC Global had a cash balance of $32.9 million, up 31.4% from $25.1 million as of Dec 31, 2014. At the end of the first six months of 2015, the company’s long-term debt, net of current portion, decreased to $840.1 million from $1,445.7 million at year-end 2014.
In second-quarter 2015, MRC Global generated $276.8 million of cash from operating activities compared with $51.9 million used in the prior-year quarter. Total capital expenditure was $12.7 million compared with $4.6 million incurred at the end of second-quarter 2014.
Outlook
Notwithstanding the unfavorable market conditions, MRC Global aims to improve its future business on the back of worthwhile long-term relationships with leading energy firms. The company also remains keen on improving its revenues and margins with the help of new acquisitions and portfolio solidification initiatives.
Stocks to Consider
MRC Global currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry are Avalon Rare Metals Inc. AVL, Celanese Corporation CE and The Dow Chemical Company DOW. All the three stocks carry a Zacks Rank #2 (Buy).
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