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MRC Global Inc. Sales Continue Rising, but It Breaks Even Once Again

The recovery in the oil and gas market continued taking hold in the second quarter despite a dip in crude prices. That rebound drove MRC Global's (NYSE: MRC) sales higher, though its earnings still couldn't get back into the black. Meanwhile, the pipe, valves, and fittings (PVF) distributor continued building its market share by signing a slew of new contracts, which positions it for stronger results going forward.

MRC Global results: The raw numbers

Metric

Q2 2017

Q2 2016

Year-Over-Year Change

Revenue

$922 million

$746 billion

24%

Net income

$0 million

($24 million)

N/A

EPS

$0.00

($0.24)

N/A

Data source: MRC Global.

Image source: Getty Images.

What happened with MRC Global this quarter?

MRC Global's sales continue to rebound.

  • Revenue surged 24% versus the year-ago quarter and 7% above last quarter.
  • Sales to midstream customers once again drove revenue growth during the quarter, rising 44% year over year to $420 million thanks to explosive growth in sales to transmission and gathering customers, which were up 83% year over year.
  • Upstream sales were also up sharply versus the year-ago quarter, increasing 22% to $258 million. Improving sales to customers in both North America and Canada, largely due to the rebound in shale drilling, drove that growth.
  • Meanwhile, revenue from downstream customers continued to lag behind and was flat versus last year at $244 million as a rise in sales to U.S. customers offset declining international sales.
  • The company broke even for the second straight quarter due to a slight decrease in margins, the negative impact of last-in, first out (LIFO) inventory cost accounting, and a litigation settlement.
  • That said, MRC Global's underlying profitability as measured by adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) was $44 million for the quarter, up from $36 million last quarter and $15 million in the year-ago period.

What management had to say

In the press release, CEO Andrew Lane commented on the second quarter:

Our strategy to build market share through contract positions with customers produced strong first half results. Sales were up 24% for the second quarter and 17% for the first half of the year as compared to the same periods in 2016 on strong growth in midstream and upstream sectors. Adjusted EBITDA for the first half of the year was $80 million, higher than the full year of 2016. I am pleased with our results and the solid contract position we have built, which we expect to deliver long term shareholder value.

As Lane notes, MRC has secured several new contracts over the past few months, which not only drove sales growth in the quarter but should lead to better results in future periods. For example, in April the company won an expanded contract with refiner PBF Energy (NYSE: PBF). That deal will enable MRC to service two refineries that PBF Energy recently bought. Meanwhile, the company extended its PVF contract with global oil giant Chevron (NYSE: CVX) for another seven years. This extension is noteworthy because the two companies have been working together for more than 60 years and Chevron became its largest customer in 2010. Finally, last month the company won contracts with Norway's Statoil (NYSE: STO) to supply valves, fittings, and other products for its $6 billion Johan Castberg offshore project, which it expects to green light later this year. In addition to that, it signed an expanded agreement to provide check valves and other items to Statoil's refining subsidiary in Denmark.

Looking forward

MRC Global believes it has a lot more room to run not only as it takes market share but as it participates in the expected spending growth in the industry over the coming years. For example, upstream spending is projected to increase from less than $400 million last year to more than $500 billion by 2019 while new pipeline expenditures in the U.S. are expected to grow from $25 million last year to nearly $35 billion by next year. Given that most of these projects will require pipes, valves, and fittings, there should be plenty of opportunities for MRC Global to distribute more products to a growing list of customers.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Chevron, MRC Global, and Statoil. The Motley Fool has a disclosure policy.