MRC Global (MRC) Q3 Earnings & Revenues Lag Estimates

MRC Global Inc. MRC reported weaker-than-expected results for third-quarter 2018.

Earnings/Revenues

Quarterly adjusted earnings came in at 20 cents per share, missing the Zacks Consensus Estimate of 23 cents. The company had reported a loss of 3 cents per share in the year-ago quarter.

Aggregate sales in the third quarter were $1,071 million, up from $959 million reported in the year-ago tally. However, the top-line figure missed the Zacks Consensus Estimate of $1,118 million.

Segmental Break-Up

Third-quarter revenues in the United States totaled $859 million, up 13% year over year. Delivery of large petrochemical projects in the downstream sector and increased drilling and well completion activity in the upstream sector boosted the segment’s quarterly top-line performance.

International sales in the reported quarter came in at $134 million, up 9% year over year. The upside primarily stemmed from stronger upstream project activity in Kazakhstan. However, unfavorable foreign exchange movement and non-recurring midstream pipeline projects dampened the segment’s quarterly revenues.

Revenues from Canada marginally improved 1% year over year to $78 million. Growth in upstream and downstream businesses was partially offset by weaker midstream business performance during the Jul-Sep period. Moreover, unfavorable foreign-exchange movement had affected the segment’s revenues in the reported quarter.

Costs/Margins

Cost of sales during the third quarter was $899 million compared to $807 million recorded in the year-earlier quarter. Adjusted gross profit margin in the quarter came in at 20.1%, up 110 basis points (bps) year over year. The company noted that this upswing was driven by the benefits of its inventory management and gross margin strategies. Notably, the quarterly gross margin numbers recorded were the highest since first-quarter 2013.

Selling, general and administrative expenses came in at $140 million, higher than $130 million recorded in the year-earlier quarter. Operating margin was 3% in the quarter under review, up 70 bps year over year.

Balance Sheet/Cash Flow

Existing the Sep-end quarter, MRC Global had cash worth $29 million, down from $48 million recorded on Dec 31, 2017. Long-term debt at the end of the third quarter was $715 million compared to $522 million posted at the end of 2017.

In the first nine months of 2018, the company used $146 million cash from operations, as against $37 million generated in the comparable period last year. Capital expenditure during the third quarter was $15 million, down from $23 million recorded in the prior-year quarter.

In October, MRC Global’s board of directors rolled out a share-repurchase program, under which it can buyback common stock worth $150 million. The program will likely expire on Dec 31, 2019.

Outlook

MRC Global expects that seasonal aspects will depress its fourth-quarter 2018 performance. Nonetheless, the company plans to combat this headwind backed by project deliveries that has been pushed from the third quarter to the fourth quarter. However, the company believes recovery in the oil & gas market conditions, increased liquidity and greater operational excellence will strengthen its near-term performances.

Stocks to Consider

MRC Global currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the Zacks Industrial Products sector are listed below:

Donaldson Company, Inc. DCI sports a Zacks Rank #1 (Strong Buy), currently. The company delivered an average positive earnings surprise of 2.29% in the preceding four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Atkore International Group Inc. ATKR carries a Zacks Rank #2 (Buy), at present. The company generated an average positive earnings surprise of 24.46% in the trailing four quarters.

Currently, Rockwell Automation, Inc. ROK also holds a Zacks Rank of 2. The company came up with an average positive earnings surprise of 5.58% during the same time frame.

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