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Why Is MRC (MRC) Up 33.4% Since Last Earnings Report?

A month has gone by since the last earnings report for MRC Global (MRC). Shares have added about 33.4% 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 drivers.

MRC Global Q4 Earnings Top Estimates, Sales View Solid

MRC Global reported mixed results for fourth-quarter 2021.The company’s earnings surpassed the Zacks Consensus Estimate by 383.33% and its sales lagged the same by 0.01%.

Adjusted earnings in the quarter under review were 17 cents per share, surpassing the Zacks Consensus Estimate of a loss of 6 cents. The bottom line was better than the year-ago quarter’s loss of 5 cents per share. The results benefited from high sales generation and improved margins.

In 2021, the company’s adjusted earnings were 27 cents per share, improving from the loss of 24 cents per share in 2020. Also, the bottom line surpassed the Zacks Consensus Estimate of 20 cents.

Revenue Details

In the quarter under review, MRC Global’s revenues were $686 million, reflecting an increase of 18.5% from the year-ago quarter. The top line gained from sales growth in the U.S. and Canada segment, partially offset by weakness in the International segment.

The company’s revenues marginally lagged the Zacks Consensus Estimate.

Based on MRC Global’s product line, revenues from carbon pipe, fittings and flanges increased 43.3% year over year to $202 million. The same from valves, automation, measurement and instrumentation was up 7.9% over a year at $233 million. Gas product revenues grew 18.8% to $164 million. Sales for general products increased 7.7% to $56 million. The same for stainless steel, and alloy pipe and fittings fell 3.1% to $31 million.

Based on the sectors served, revenues from the upstream production were $140 million, increasing 11.1% from the year-ago quarter. Midstream pipeline sales totaled $87 million, up 40.3% from the year-ago quarter, and sales for gas utilities totaled $258 million, increasing 18.9% year over year. Downstream, industrial & energy transition (“DIET”) sales were $201 million, reflecting year-over-year growth of 15.5%.

The company has three reportable segments — the U.S., Canada and International. Further information is given below:

Sales generated from the U.S. segment (representing 82.5% of the company’s fourth-quarter revenues) totaled $566 million, increasing 26.3% year over year. The results benefitted from improvements in DIET, upstream production, midstream pipeline and gas utilities sectors.

Revenues from the Canada segment (5.8% of the quarter’s revenues) moved up 73.9% year over year to $40 million on the back of strength in the upstream production and gas utilities sectors. Weakness in the midstream pipeline sector played a spoilsport.

Sales from the International segment (11.7% of the quarter’s revenues) declined 25.9% to $80 million due to the pandemic-induced constraints.

In 2021, the company’s revenues totaled $2.67 billion, increasing 4.1% year over year. Also, its yearly sales came in line with the Zacks Consensus Estimate.

Margin Profile

In the quarter under review, MRC Global’s cost of sales increased 18.4% year over year to $579 million. The adjusted gross profit in the quarter increased 29.8% year over year to $148 million. Margin at 21.6% grew 190 basis points (bps) year over year. Adjusted selling, general and administrative expenses were up 9.4% year over year to $105 million.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased 113.6% year over year to $47 million, while the adjusted EBITDA margin was up 310 bps at 6.9%. Interest expenses were $5 million, down from $6 million in the year-ago quarter.

Balance Sheet and Cash Flow

Exiting the fourth quarter, MRC Global had cash and cash equivalents of $48 million, up 2.1% from $47 million at the end of the previous quarter. Long-term debt, net, decreased 8.7% to $295 million from $323 million in the previous quarter.

In 2021, the company generated net cash of $56 million from operating activities, decreasing 78.5% from the previous year. Capital spent for purchasing property, plant and equipment was $10 million, decreasing 9.1% year over year.

In the year, the company repurchased shares for $4 million and paid out dividends totaling $24 million.

Outlook

For 2022, MRC Global anticipates revenues of $3 billion, suggesting growth from $2.67 billion generated in 2021. Revenues in each of the gas utilities, upstream production and midstream pipeline sectors are predicted to increase in the double-digit percentage. The DIET sector’s sales are predicted to be up in the high-single digits.

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

Adjusted EBITDA in the year is anticipated to be at least $190 million, and the tax rate is expected to be 23-26%. Selling, general and administrative expenses are predicted to increase modestly from the previous year. Cash flow from operations is likely to increase year over year and capital expenditure is anticipated to be $10-$15 million.

For first-quarter 2022, the company anticipates revenues growth in the low- to mid-single digits sequentially.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

The consensus estimate has shifted 70% due to these changes.

VGM Scores

Currently, MRC has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise MRC has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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