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Why Is MRC (MRC) Up 6.2% Since Last Earnings Report?
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A month has gone by since the last earnings report for MRC Global (MRC - Free Report) . Shares have added about 6.2% 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 the most recent earnings report in order to get a better handle on the important catalysts.
MRC Global Q1 Earnings Beat, Fall Y/Y on Weak Demand
MRC Global reported better-than-expected results for the first quarter of 2020. 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 earnings per share in the quarter were 1 cent, surpassing the Zacks Consensus Estimates of a loss per share of 5 cents. However, the bottom line plummeted 92.9% from the year-ago reported quarter’s earnings per share of 14 cents. The company’s net income attributable to shareholders came in at 4 cents per share.
Revenue Details
In the reported quarter, MRC Global’s revenues totaled $794 million, reflecting a year-over-year decline of 18.1%. The results suffered from lower customer spending due to a decline in commodity prices. On a sequential basis, the company’s revenues increased 4% on the back of healthy business in the U.S. gas utilities sector.
However, the company’s revenues surpassed the Zacks Consensus Estimate of $773.9 million by 2.6%.
Based on MRC Global’s product line, revenues from carbon pipe, fittings and flanges declined 30% year over year to $215 million, and that from valves, automation, measurement and instrumentation decreased 15.7% to $323 million, while that from gas products inched up 0.8% to $134 million. Sales for general products fell 12.4% to $85 million, and that for stainless steel alloy pipe and fittings declined 26% to $37 million.
Based on the sectors served, revenues from the Upstream production were approximately $222 million, declining 28.8% from the year-ago quarter. Midstream pipeline sales totaled $119 million, down 19% from the year-ago quarter, and Gas utilities sales totaled $202 million, declining 5.6% year over year. Downstream & industrial sales were $251 million, reflecting a decline of 15.5% 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 80.4% of the company’s first-quarter revenues) totaled $638 million, declining 18.1% year over year. The results were adversely impacted by weakness in customer spending and in some cases because of uncertain timings of project.
Revenues from the Canada segment (6.3% of the quarter’s revenues) moved down 26.5% year over year to $50 million due to weakness in upstream production, midstream pipeline and gas utilities businesses.
Sales from the International segment (13.3% of the quarter’s revenues) declined 13.8% to $106 million. The results were adversely impacted by weakness in upstream production and midstream pipeline businesses. Also, forex woes had adverse impacts of $6 million.
Margin Profile
In the quarter under review, MRC Global’s cost of sales declined 18.8% year over year to $646 million. Adjusted gross profit in the quarter moved down 17.4% year over year to $157 million. Margin increased 20 basis points (bps) to 19.8%. Selling, general and administrative (SG&A) expenses were down 9.4% year over year to $126 million.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) declined 39.3% year over year to $34 million, while adjusted EBITDA margin was down 150 bps at 4.3%. Interest expenses were down 27.3% year over year at $8 million.
Balance Sheet and Cash Flow
Exiting first-quarter 2020, MRC Global had a cash balance of $28 million, down 12.5% from $32 million at the end of the last reported quarter. Long-term debt balance declined 5.5% sequentially to $517 million.
Notably, the company repaid $228 million borrowings under the revolving credit facilities and $4 million of long-term obligations. However, it raised $205 million through revolving credit facilities.
In the quarter, the company generated net cash of $37 million from operating activities against $2 million used in the year-ago quarter. Capital spending totaled $2 million, flat year over year.
During the quarter, the company used $6 million for paying out dividends and refrained from buying back any shares.
Outlook
MRC Global is wary about the prevailing weakness in the oil & gas industry and unfavorable price (commodity) environment. Its cost-saving actions in response to the pandemic are predicted to lower operating costs by $80 million in 2020. Also, actions are being considered to reduce inventories by $140 million.
However, the company believes that healthy liquidity and cash flow model will help it manage the pandemic-related risks. In 2020, the company predicts to generate cash flow of $200 million from operating activities. Free cash flow (adjusted for capital expenditure and dividend payments) is predicted to be $160 million. Free cash flow yield will likely be roughly 50%.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -725.21% due to these changes.
VGM Scores
Currently, MRC has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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 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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Why Is MRC (MRC) Up 6.2% Since Last Earnings Report?
A month has gone by since the last earnings report for MRC Global (MRC - Free Report) . Shares have added about 6.2% 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 the most recent earnings report in order to get a better handle on the important catalysts.
MRC Global Q1 Earnings Beat, Fall Y/Y on Weak Demand
MRC Global reported better-than-expected results for the first quarter of 2020. 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 earnings per share in the quarter were 1 cent, surpassing the Zacks Consensus Estimates of a loss per share of 5 cents. However, the bottom line plummeted 92.9% from the year-ago reported quarter’s earnings per share of 14 cents. The company’s net income attributable to shareholders came in at 4 cents per share.
Revenue Details
In the reported quarter, MRC Global’s revenues totaled $794 million, reflecting a year-over-year decline of 18.1%. The results suffered from lower customer spending due to a decline in commodity prices. On a sequential basis, the company’s revenues increased 4% on the back of healthy business in the U.S. gas utilities sector.
However, the company’s revenues surpassed the Zacks Consensus Estimate of $773.9 million by 2.6%.
Based on MRC Global’s product line, revenues from carbon pipe, fittings and flanges declined 30% year over year to $215 million, and that from valves, automation, measurement and instrumentation decreased 15.7% to $323 million, while that from gas products inched up 0.8% to $134 million. Sales for general products fell 12.4% to $85 million, and that for stainless steel alloy pipe and fittings declined 26% to $37 million.
Based on the sectors served, revenues from the Upstream production were approximately $222 million, declining 28.8% from the year-ago quarter. Midstream pipeline sales totaled $119 million, down 19% from the year-ago quarter, and Gas utilities sales totaled $202 million, declining 5.6% year over year. Downstream & industrial sales were $251 million, reflecting a decline of 15.5% 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 80.4% of the company’s first-quarter revenues) totaled $638 million, declining 18.1% year over year. The results were adversely impacted by weakness in customer spending and in some cases because of uncertain timings of project.
Revenues from the Canada segment (6.3% of the quarter’s revenues) moved down 26.5% year over year to $50 million due to weakness in upstream production, midstream pipeline and gas utilities businesses.
Sales from the International segment (13.3% of the quarter’s revenues) declined 13.8% to $106 million. The results were adversely impacted by weakness in upstream production and midstream pipeline businesses. Also, forex woes had adverse impacts of $6 million.
Margin Profile
In the quarter under review, MRC Global’s cost of sales declined 18.8% year over year to $646 million. Adjusted gross profit in the quarter moved down 17.4% year over year to $157 million. Margin increased 20 basis points (bps) to 19.8%. Selling, general and administrative (SG&A) expenses were down 9.4% year over year to $126 million.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) declined 39.3% year over year to $34 million, while adjusted EBITDA margin was down 150 bps at 4.3%. Interest expenses were down 27.3% year over year at $8 million.
Balance Sheet and Cash Flow
Exiting first-quarter 2020, MRC Global had a cash balance of $28 million, down 12.5% from $32 million at the end of the last reported quarter. Long-term debt balance declined 5.5% sequentially to $517 million.
Notably, the company repaid $228 million borrowings under the revolving credit facilities and $4 million of long-term obligations. However, it raised $205 million through revolving credit facilities.
In the quarter, the company generated net cash of $37 million from operating activities against $2 million used in the year-ago quarter. Capital spending totaled $2 million, flat year over year.
During the quarter, the company used $6 million for paying out dividends and refrained from buying back any shares.
Outlook
MRC Global is wary about the prevailing weakness in the oil & gas industry and unfavorable price (commodity) environment. Its cost-saving actions in response to the pandemic are predicted to lower operating costs by $80 million in 2020. Also, actions are being considered to reduce inventories by $140 million.
However, the company believes that healthy liquidity and cash flow model will help it manage the pandemic-related risks. In 2020, the company predicts to generate cash flow of $200 million from operating activities. Free cash flow (adjusted for capital expenditure and dividend payments) is predicted to be $160 million. Free cash flow yield will likely be roughly 50%.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -725.21% due to these changes.
VGM Scores
Currently, MRC has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. 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 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.