MRC (MRC) Down 2.8% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for MRC Global (MRC). Shares have lost about 2.8% in that time frame, outperforming 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 drivers.

MRC Global Q2 Earnings Miss Estimates, Sales Beat

MRC Global Inc. reported mixed results for second-quarter 2022. MRC’s earnings missed the Zacks Consensus Estimate by 6.9%. However, sales beat the same by 0.9%.

In the reported quarter, MRC’s adjusted earnings were 27 cents per share, missing the Zacks Consensus Estimate of 29 cents. The bottom line increased 237.5% from the year-ago quarter’s figure of 8 cents. Results benefited from higher sales generation and improved margins.

Revenue Details

In the quarter under review, MRC Global’s revenues were $848 million, reflecting an increase of 24% from the year-ago quarter’s level. The top line gained from sales growth in the United States and Canada segments, partially offset by a weakness in the International segment.

Revenues surpassed the Zacks Consensus Estimate of $831 million.

Based on MRC Global’s product line, revenues from carbon pipe, fittings and flanges increased 31.9% year over year to $248 million. The same from valves, automation, measurement and instrumentation was up 15.2% from the year-ago quarter’s figure to $280 million. Gas product revenues grew 22.2% to $198 million. Sales for general products increased 12.3% to $64 million. The same for stainless steel, and alloy pipe and fittings grew 61.1% to $58 million.

Based on the sectors served, revenues from upstream production were $178 million, up 24% from the year-ago quarter’s level. Midstream pipeline sales totaled $97 million, up 17% from the year-ago quarter’s tally, while sales for gas utilities totaled $314 million, increasing 17% year over year. Downstream, and industrial & energy transition (DIET) sales were $259 million, reflecting year-over-year growth of 36%.

MRC Global has three reportable segments, namely the United States, Canada and International that are discussed in detail below:

Sales generated from the U.S. segment (representing 84.6% of second-quarter revenues) totaled $717 million, rising 28% year over year. The results benefited from improvements in DIET, upstream production and midstream pipeline sectors.

Revenues from the Canada segment (4.7% of the quarter’s revenues) moved up 33% year over year to $40 million on the back of strength in the upstream production sector.

Sales from the International segment (10.7% of the quarter’s revenues) declined 7% to $91 million due to the weaker foreign currencies.

Margin Profile

In the quarter under review, MRC Global’s cost of sales increased 21.4% year over year to $697 million. The adjusted gross profit in the quarter increased 35.1% year over year to $181 million. Margin at 21.3% grew 180 basis points (bps) year over year. Adjusted selling, general and administrative expenses were up 18.8% year over year to $120 million.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 80.6% year over year to $65 million, while the adjusted EBITDA margin was up 250 bps to 7.7%. Interest expenses were $5 million compared with $6 million in the year-ago quarter.

Balance Sheet and Cash Flow

At the time of exiting the second quarter, MRC Global had cash and cash equivalents of $21 million, down 56.3% from $48 million at the end of the fourth quarter of 2021. Long-term debt, net, increased 19.7% to $353 million from $295 million in the fourth quarter of 2021.

In the first six months of 2022, MRC Global used net cash of $63 million from operating activities compared with $47 million of net cash generated in the previous year’s period. Capital spent on purchasing property, plant and equipment was $5 million, up 25% year over year.

In the first six months of the current year, MRC repurchased shares worth $2 million and paid out dividends totaling $12 million.

Outlook

For 2022, MRC Global anticipates revenues of $3.3 billion, suggesting growth from $2.67 billion generated in 2021. Revenues in gas utilities are predicted to increase 20-25%, DIET is assumed to increase 25-30%, upstream production is projected to rise 30-35% and the midstream pipeline sector is expected to increase by 10-15%.

On a segmental basis, the U.S. sales are predicted to be up 25-30%, while Canada sales are estimated to be up 30-35% during 2022. International sales are anticipated to grow in mid-single digits’ percentage.

Adjusted EBITDA in the ongoing year is anticipated to be $230 million, while the tax rate is expected to be 27-30%. Selling, general and administrative expenses are predicted to be 14-14.5% of revenues. Cash flow from operations is likely to be net positive for the year, primarily generated in the fourth quarter, while capital expenditure is envisioned to be $10-$15 million.

For third-quarter 2022, MRC Global anticipates revenue growth in a mid-single-digit percentage, sequentially.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

The consensus estimate has shifted -36.6% due to these changes.

VGM Scores

At this time, MRC has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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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