Why Is MRC (MRC) Up 23.2% Since Last Earnings Report?

A month has gone by since the last earnings report for MRC Global (MRC). Shares have added about 23.2% 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 its most recent earnings report in order to get a better handle on the important drivers.

MRC Global Q1 Earnings Meet Estimates, Sales View Solid

MRC Global Inc. reported encouraging results for first-quarter 2022. MRC’s adjusted earnings are in line with the Zacks Consensus Estimate of 17 cents while its sales surpassed the same by 3%.

The bottom line reversed the year-ago quarter’s loss of 7 cents per share. Results benefited from higher sales generation and improved margins.

Revenue Details

In the quarter under review, MRC Global’s revenues were $742 million, reflecting an increase of 22% 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 $721 million.

Based on MRC Global’s product line, revenues from carbon pipe, fittings and flanges increased 41.3% year over year to $212 million. The same from valves, automation, measurement and instrumentation was up 4.1% from the year-ago quarter’s figure to $251 million. Gas product revenues grew 37.3% to $184 million. Sales for general products increased 7.3% to $59 million. The same for stainless steel, and alloy pipe and fittings grew 24.1% to $36 million.

Based on the sectors served, revenues from the upstream production were $158 million, up 24% from the year-ago quarter’s level. Midstream pipeline sales totaled $87 million, up 12% from the year-ago quarter’s tally, while sales for gas utilities totaled $271 million, increasing 29% year over year. Downstream, and industrial & energy transition (DIET) sales were $226 million, reflecting year-over-year growth of 16%.

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 83.3% of first-quarter revenues) totaled $618 million, rising 28% year over year. The results benefitted from improvements in DIET, upstream production and midstream pipeline sectors.

Revenues from the Canada segment (5.8% of the quarter’s revenues) moved up 34% year over year to $43 million on the back of strength in the upstream production sector.

Sales from the International segment (10.9% of the quarter’s revenues) declined 13% to $81 million due to the pandemic-induced constraints.

Margin Profile

In the quarter under review, MRC Global’s cost of sales increased 19.8% year over year to $606 million. The adjusted gross profit in the quarter increased 28.8% year over year to $152 million. Margin at 20.5% grew 110 basis points (bps) year over year. Adjusted selling, general and administrative expenses were up 7% year over year to $107 million.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 100% year over year to $48 million, while the adjusted EBITDA margin was up 260 bps to 6.5%. Interest expenses were $6 million, flat with the figure reported in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the first quarter, MRC Global had cash and cash equivalents of $31 million, down 35.4% from $48 million at the end of the previous quarter. Long-term debt, net, increased 1.7% to $300 million from $295 million in the previous quarter.

In the first three months of 2022, MRC Global used net cash of $13 million from operating activities compared with $24 million of net cash generated in the previous year’s quarter. Capital spent on purchasing property, plant and equipment was $2 million, flat year over year.

In the first three months of the current year, MRC repurchased shares worth $2 million and paid out dividends totaling $6 million.

Outlook

For 2022, MRC Global anticipates revenues of $3.1 billion, suggesting growth from $2.67 billion generated in 2021. Revenues in each of the gas utilities, DIET, upstream production and midstream pipeline sectors are predicted to increase in double-digit percentages.

On a segmental basis, the U.S. and Canada sales are predicted to be up in double-digit percentage during 2022. International sales are anticipated to grow in mid-single digits.

Adjusted EBITDA in the ongoing year is anticipated to be $200 million, while the tax rate is expected to be 24-26%. Selling, general and administrative expenses are predicted to be $111-$113 million per quarter. Cash flow from operations is likely to increase modestly year over year while capital expenditure is anticipated to be $10-$15 million.

For second-quarter 2022, MRC anticipates revenue growth in high-single-digit percentage, sequentially.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

At this time, 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 B on the value side, putting it in the second quintile for this investment strategy.

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

Outlook

Estimates have been broadly trending upward 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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