Company Overview

MRC Global Inc. (MRC) is a leading global distributor of pipes, valves, fittings, and other infrastructure products and services to the energy, industrial, and gas utility end-markets. With a history dating back over 100 years, the company has established a strong presence across North America, Europe, Asia, and the Middle East, serving a diverse customer base that includes some of the largest energy companies in the world.

The company’s business is divided into three key sectors: Gas Utilities (35% of 2024 revenue), Downstream, Industrial and Energy Transition (DIET, 32% of 2024 revenue), and Production & Transmission Infrastructure (PTI, 33% of 2024 revenue). This diversified portfolio has helped MRC Global navigate the volatility in the energy markets, as performance in one segment can offset challenges in another.

Historical Background

MRC Global’s journey began in 1921, initially focusing on distributing products to the oil and gas industry. Over time, the company expanded its product offerings and diversified its customer base to include gas utilities, downstream, industrial, and other energy-related markets. This strategic diversification has been crucial in helping the company weather the cyclical nature of the oil and gas industry throughout its long history.

A significant milestone for MRC Global came in 2012 when the company went public on the New York Stock Exchange, providing access to capital markets to fund growth initiatives and strategic acquisitions. In 2015, the company further strengthened its financial position by issuing $363 million in convertible preferred stock, which proved valuable during a challenging period in the oil and gas industry.

Throughout its history, MRC Global has faced various challenges, including commodity price volatility, supply chain disruptions, and increasing competition. The COVID-19 pandemic in 2020 presented a particularly significant hurdle, leading to a decline in revenue and profitability. In response, the company implemented cost-saving measures and optimized its inventory and working capital management to mitigate the pandemic’s effects.

Recent Performance

In the first nine months of 2024, MRC Global reported revenue of $2.44 billion, down 8% year-over-year, with declines across its key sectors. The Gas Utilities business saw a 10% decrease, as some customers continued to focus on destocking inventory amid inflationary pressures and rising interest rates. The DIET sector was down 1%, impacted by project delays, while the PTI segment declined 11% due to softer oilfield activity in the U.S.

Despite the top-line challenges, the company’s international operations have been a bright spot, with revenue increasing 14% year-over-year in the first nine months of 2024. This was driven by growth in both the PTI and DIET sectors, particularly in Europe, Asia, and the Middle East. MRC’s global footprint and diverse end-markets have allowed it to capture opportunities in emerging energy transition projects, such as offshore wind and carbon capture technologies, helping to offset weakness in traditional oil and gas.

On the profitability front, MRC Global’s adjusted EBITDA margin declined to 7% in the first nine months of 2024, down from 7.6% in the prior-year period, due to the revenue declines and product mix shifts. However, the company has taken steps to optimize its cost structure, with plans to maintain or even reduce its adjusted SG&A expenses in 2025 compared to 2024 levels.

Financials

MRC Global’s balance sheet and liquidity position have improved significantly in recent months. In October 2024, the company issued a new $350 million seven-year Term Loan B, which it used to repurchase its outstanding convertible preferred stock. This simplified the capital structure and is expected to be accretive to both earnings and cash flow starting in 2025, as the after-tax interest costs are lower than the non-deductible preferred stock dividends.

For the most recent fiscal year (2023), MRC Global reported revenue of $3.41 billion, net income of $114 million, operating cash flow of $181 million, and free cash flow of $166 million. In the most recent quarter (Q3 2024), the company achieved revenue of $797 million, net income of $29 million, operating cash flow of $96 million, and free cash flow of $87 million. However, this represented a 10% year-over-year decline in revenue, primarily due to lower sales in the PTI, DIET, and Gas Utilities sectors.

Geographically, MRC Global’s revenue breakdown for Q3 2024 was as follows: U.S. $644 million (81% of total), Canada $26 million (3% of total), and International $127 million (16% of total). The International segment continued to show strong growth, with a 21% increase in revenue year-over-year.

Liquidity

As of September 30, 2024, MRC Global had $547 million in total liquidity, including $62 million in cash and $485 million in available borrowing capacity under the ABL. The company’s financial position is further strengthened by a debt-to-equity ratio of 0.13, a current ratio of 1.99, and a quick ratio of 1.11.

Additionally, the company is in the process of extending its $750 million asset-based lending (ABL) facility to 2029, further strengthening its financial flexibility. MRC Global is targeting a leverage ratio of 1.0x to 1.5x in 2025, down from the pro forma 1.7x as of Q3 2024, and expects to use free cash flow to further deleverage the balance sheet.

Outlook

Looking ahead, MRC Global expects the fourth quarter of 2024 to see a seasonal sequential decline in revenue in the upper single digits, driven by continued softness in the U.S. PTI sector and project delays in the Gas Utilities and DIET segments. However, the company remains optimistic about the longer-term outlook, particularly in its Gas Utilities and DIET businesses, where it anticipates a meaningful improvement in 2025.

For the full year 2024, MRC Global has increased its guidance for operating cash flow to $220 million or more, effectively meeting its previous target of $200 million one quarter early. The company expects adjusted gross margins to average over 21% for the year, but around 21% in Q4. SG&A expense is anticipated to be at a similar level to Q3, with capital expenditures of approximately $35 million, including ERP implementation costs. The effective tax rate is expected to be in the range of 24% to 26%.

Despite the current headwinds, MRC Global’s diversified business model, global presence, and focus on cost optimization have positioned the company to navigate the challenges in the energy market. The Gas Utilities segment, which makes up 35% of MRC Global’s total revenue for the first nine months of 2024, has long-term growth fundamentals due to the need for continuous pipeline network replacement and expansion. The DIET segment, contributing 32% of total revenue, has a robust outlook driven by increased maintenance, repair and operations activities, project turnaround activity, and rapidly growing demand for energy transition projects. The PTI segment, accounting for 33% of total revenue, faces challenges from volatile commodity prices but benefits from MRC Global’s strong relationships with larger public exploration and production companies.

With a strengthened balance sheet and improved liquidity, MRC Global is well-equipped to capitalize on growth opportunities in the evolving energy landscape, including the ongoing transition towards lower-carbon energy sources. The company’s supply chain expertise and customer relationships position it to benefit from the increasing focus on energy transition projects, such as biofuel refineries and offshore wind, which have shown rapid growth in recent years as customers work to decarbonize and meet emissions reduction goals.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.