MRC Global Inc.'s Revenue Finally Stops Sliding

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The oil market started showing signs of improvement during the third quarter, which trickled down into MRC Global's (MRC -1.08%) results. While it was not much, the company did see its revenue edge up 6% from the second quarter, and its loss narrowed quite a bit after adjusting for several one-time charges. That slow turn has the company growing slightly more optimistic about what lies ahead.

MRC Global results: The raw numbers

YOY = year over year. Data source: MRC Global.

What happened with MRC Global this quarter?

MRC Global saw a slight sequential improvement.

• While MRC Global's revenue plunged 26% versus the third quarter of last year, it did rise 6% from last quarter. Driving that rebound were improvements in upstream and midstream activity, thanks to higher oil and gas prices, which fueled an increase in customer spending.
• Meanwhile, the primary driver of the year-over-year decline was sagging sales to U.S. customers, which dropped 32% to $590 million. That said, about a quarter of that decline resulted from the disposal its U.S. oil country tubular goods product line. On the other hand, sales in Canada were nearly flat at $70 million, while international sales slipped 2% to $133 million.
• When looking at sales by sector, upstream revenue plunged 41% to $224 million, primarily because of reduced customer activity. Meanwhile, midstream sales slipped 12% to $327 million, mainly because of a 22% sales decline to transmission customers. Finally, downstream revenue dropped 25% as a result of lower project activity.
• While the company reported a net loss, the bulk of that was because of $40 million, or $0.42 per share, in one-time charges, including inventory, severance, and restructuring charges. After adjustments, the net loss would have been $0.06 per share, which is an improvement from the $0.24 per share loss last quarter. 
• On another positive note, the company generated $82 million in cash flow from operations. That brought its full-year cash flow total to $230 million, which has exceeded its initial expectations.
• As a result of that healthy cash flow generation, MRC Global is repaying its $100 million senior secured loan and adding $25 million to its share repurchase program, boosting it up to $125 million. Since initiating the program last year, the company has repurchased nearly $100 million in stock.

What management had to say

CEO Andrew Lane commented on the quarter:

This quarter's revenue was improved over the previous quarter, which is the first quarter of sequential revenue growth since 2014. I am encouraged by the 15% sequential growth in our U.S. upstream business.

It would seem like MRC Global's results finally hit bottom and started to bounce during the third quarter. That was not totally unexpected, given that several leading oil industry participants said last quarter that they believed it would mark the bottom of the cycle. For example, leading oilfield service company Schlumberger (SLB -0.64%) -- MRC Global's largest supplier -- stated in its third-quarter earnings release that "after calling the bottom of the cycle in the second quarter of this year, our business stabilized in the third quarter." Specifically, Schlumberger noted that after excluding its recently acquired Cameron business, "revenue increased 1% sequentially, driven by higher activity in North America" because of "a modest increase in activity on land." In other words, shale drilling activities started to rebound during the third quarter, which drove a small recovery in sales.

Looking forward

Because of that rebound in onshore drilling activities, MRC's CEO said that he is "encouraged by the recent improvements in market conditions and expect[s] 2017 revenue to improve over 2016." However, he also cautioned that "expectations regarding the size of the improvement remain uncertain as we wait for our customers to finalize their 2017 budget plans." That certainly meshes with Schlumberger's outlook, which stated that "in terms of 2017 E&P investment, visibility remains limited, as our customers are still in the planning process. We maintain that a broad-based, V-shaped recovery is unlikely, given the fragile financial state of the industry, although we do see activity upside in 2017 in North America land." In other words, while it appears that the worst is over, 2017 could still be a challenging year.