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MRC Global Results Impacted By Continued Weakness in Line Pipe Product Group
08/09/2013 - MRC Global Inc., the largest global distributor, based on sales, of pipe, valves and fittings (PVF) and related products and services to the energy and industrial sectors, announced second quarter 2013 results.
MRC's sales of US$1.268 billion in the second quarter of 2013 decreased 11% from the second quarter of 2012 due, in part, to a planned reduction in the company's lower margin oil country tubular goods (OCTG) business. OCTG represented 9% of total sales in the second quarter of 2013 compared to 14% of total sales in the second quarter of 2012. Continued weakness in the company's line pipe product group within the midstream and upstream sectors also impacted sales. Line pipe sales were US$231.1 million for the second quarter of 2013 as compared to US$294.4 million for the same period in 2012.
Net income for the second quarter of 2013 increased 13% to US$43.9 million compared to second quarter 2012 adjusted net income of US$38.8 million which excludes a US$7.5 million after-tax charge related to the purchase and early retirement of a portion of MRC's previously outstanding senior secured notes in 2012. Net income for the second quarter of 2012 was US$31.3 million. The refinancing of the company's senior secured notes in November 2012 contributed to lower interest expense in 2013. Other items impacting net income in the second quarter of 2013 included a US$13.6 million pre-tax foreign currency exchange loss due to weaker Australian and Canadian dollars as well as a US$2.6 million favorable adjustment to the company's deferred tax liabilities. Adjusted EBITDA was US$98.9 million for the second quarter of 2013 compared to US$123.6 million for the same period in 2012.
Andrew R. Lane, MRC's chairman, president and chief executive officer, stated, "While our revenues reflect reduced upstream and midstream customer spending, primarily in the U.S., our efforts to improve operating margins and our fourth quarter 2012 debt refinancing actions to lower our interest costs are resulting in net income and earnings per share improvements. In addition, we are executing on our growth strategy through the previously announced acquisition of Flow Control Products in the Permian Basin and the announcement and implementation of new contracts with NiSource and Celanese during the quarter."
MRC's second quarter 2013 gross profit of US$243.9 million improved to 19.2% of sales from US$241.7 million, or 16.9% of sales, in the second quarter of 2012. The increase in gross profit percentage reflected planned changes in product mix and other gross profit enhancement initiatives and included a US$12.5 million pre-tax second quarter 2013 benefit resulting from the use of the last-in, first-out method of inventory cost accounting as compared to an US$11.6 million pre-tax expense in the second quarter of 2012.
For the second quarter of 2013, selling, general and administrative expenses were US$154.0 million compared to US$151.2 million in the same period of 2012. This increase was primarily attributable to the inclusion of expenses from the acquisition of Production Specialty Services, Inc. (PSS) in December 2012.
Sales by Segment
U.S. sales in the second quarter of 2013 were US$975.2 million and reflected an expected decrease in OCTG revenues of US$83.0 million from the second quarter of 2012. Canadian sales in the second quarter of 2013 were US$153.6 million, down 4% from the same quarter in 2012 due primarily to a longer spring break-up in 2013. International sales in the second quarter of 2013 were US$139.0 million and decreased 8% over the same period in 2012 reflecting weaker demand, particularly in parts of Australia that have experienced reduced customer spending in the mining and oil and gas sectors.
U.S. sales in the second quarter of 2013 were US$975.2 million and reflected an expected decrease in OCTG revenues of US$83.0 million from the second quarter of 2012. Canadian sales in the second quarter of 2013 were US$153.6 million, down 4% from the same quarter in 2012 due primarily to a longer spring break-up in 2013. International sales in the second quarter of 2013 were US$139.0 million and decreased 8% over the same period in 2012 reflecting weaker demand, particularly in parts of Australia that have experienced reduced customer spending in the mining and oil and gas sectors.
Sales by Sector
Upstream sales in the second quarter of 2013 declined 17% from the second quarter of 2012 to US$542.4 million, or 43% of sales, attributable to the planned reduction in OCTG revenue and reduced customer spending during the quarter, slightly offset by the acquisition of PSS and Chaparral Supply, LLC, which together contributed US$41 million of revenue in the second quarter of 2013.
Upstream sales in the second quarter of 2013 declined 17% from the second quarter of 2012 to US$542.4 million, or 43% of sales, attributable to the planned reduction in OCTG revenue and reduced customer spending during the quarter, slightly offset by the acquisition of PSS and Chaparral Supply, LLC, which together contributed US$41 million of revenue in the second quarter of 2013.
Midstream sales in the second quarter of 2013 decreased 5% from the second quarter of 2012 to US$375.9 million, or 30% of sales. Spending from the company's transmission customers declined but was slightly offset by an increase in spending from the company's gas utility customers.
Downstream sales in the second quarter of 2013 decreased 7% from the second quarter of 2012 to US$349.5 million, or 27% of sales. Lower sales in the downstream sector were primarily attributable to the company's Australian operations, driven by a reduction in mining and oil and gas activities as well as the company's European operations, which were impacted by weak economic conditions.
Headquartered in Houston, Texas, MRC, a Fortune 500 company, is the largest global distributor, based on sales, of pipe, valves and fittings (PVF) and related products and services to the energy and industrial sectors and supplies these products and services across each of the upstream, midstream and downstream sectors.
