MRC Global Inc. MRC reported weaker-than-expected fourth-quarter 2016 results. Quarterly results were dismal due to challenging conditions prevailing in the oil and gas market.
However, this Zacks Rank #3 (Hold) stock is poised to grow on increased market share, greater cash generation, lower debt and reduced operating costs.
Over the last three months, MRC Global’s shares yielded a return of 9.72% – outperforming 7.55% gain provided by the Zacks categorized Steel Pipe & tubes industry.
Eliminating the impact of after-tax restructuring and severance expenses, quarterly loss of 18 cents per share was wider than the Zacks Consensus Estimate of a loss of 11 cents. The company had reported adjusted earnings of 12 cents per share in the year-ago period.
Full-year 2016 adjusted loss of $1.10 per share was narrower than the adjusted loss of $3.38 per share recorded in the prior-year period.
MRC Global’s revenues plunged 25.6% year over year to $719 million. The top line also fell short of the Zacks Consensus Estimate of $752 million.
For full-year 2016, revenues came in at $3,041 million, lower than $4,529 million generated for 2015.
The company’s top-line performance deteriorated due to poor segmental performance.
Performance of the Segments
MRC Global’s fourth-quarter sales in the U.S. totaled $550 million, down 29% year over year. The decline was mainly stemmed by lower sales generated by the company’s upstream, midstream and downstream sectors.
However, International sales came in at $114 million, down 7% year over year, due to shrinking upstream sales.
Revenues from Canada were $55 million, down 17% year over year. The downside was stemmed by lower upstream and midstream sales.
Revenues by Sector
For the reported quarter, upstream sales slumped 41% year over year to $218 million. Weak customer activity resulted in the year-over-year decline.
Midstream sales summed $268 million in the fourth quarter, down 15% year over year. The company’s midstream sales dropped due to soft demand accrued from the gas utility and transmission customers.
The company’s fourth-quarter downstream sales were down 17% year over year to $233 million. The year-over-year decline was primarily attributable to poor project activity.
Margins & Costs
Adjusted gross profit margin was 18.5%, up from 17.7% in the year-ago quarter. Selling, general and administrative expenses were $128 million as against $146 million in the prior-year quarter. Adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) totaled $17 million compared with $34 million in the year-earlier quarter.
For full-year 2016, adjusted gross profit margin came in at 17.2%, down 80 basis points (bps) year over year.
Full-year 2016, adjusted EBITDA of $75 million was way below than $235 million recorded at the end of 2015.
Balance Sheet & Cash Flow
MRC Global exited the fourth quarter with cash balance of $109 million as against $69 million as of Dec 31, 2015. At the end of the quarter, the company’s long-term debt, net of current portion, descended to $406 million from $511 million at year-end 2015.
At the end of 2016, MRC Global generated $253 million of cash from operating activities compared with $690 million on Dec 31, 2015. Total capital expenditure was $33 million, down 15.3% year over year.
During fourth-quarter 2016, MRC Global repurchased its common stock worth $7 million, at an average price of $15.94 per share.
Despite unfavorable and tepid market conditions, MRC Global anticipates to improve its business on the back of superior customer relationships, working capital optimization, operational expense management and balance sheet strengthening.
Some better-ranked stocks within the industry are listed below:
Apogee Enterprises, Inc. APOG has an average earnings surprise of 13.24% for the last four quarters and presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Applied Industrial Technologies, Inc. AIT currently holds a Zacks Rank #2 (Buy) and has an average earnings surprise of 6.18% for the past four quarters.
Actuant Corporation ATU also holds a Zacks Rank #2 and has an average earnings surprise of 11.47% for the trailing four quarters.
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