MRC Global (NYSE:MRC) overcame the impact of two major hurricanes and weaker oil prices to post another quarter of improving revenue. However, after breaking even the last two quarters, earnings took a step back during the third quarter, though that was entirely due to the costs associated with strengthening its balance sheet. That improving financial profile positions the company to start sending cash back to investors again in the form of a newly authorized $100 million share repurchase program.

MRC Global results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$959 million

$793 billion

21%

Net income

($3 million)

($46 million)

N/M

EPS

($0.03)

($0.48)

N/M

Data source: MRC Global

A person in a hardhat standing near a stack of pipelines.

Image source: Getty Images.

What happened with MRC Global this quarter?

MRC Global's sales grew across the board:

  • MRC Global's revenue not only was 21% higher than the year-ago quarter but rose 4% from the second quarter.
  • Sales to midstream customers led the way, jumping 34% to $437 million. The company benefited from a 41% increase in sales to pipeline companies in support of the construction of new gathering and transmission lines as well as a 27% increase in sales to gas utility customers.
  • Upstream sales jumped 20% to $269 million thanks to increased drilling activities by customers in the U.S. and Canada.
  • Revenue from downstream refining and petrochemical customers rose 5% to $253 million, primarily due to higher sales in the U.S.
  • While MRC Global reported a loss during the quarter, that was due to $5 million, or $0.05 per share, in costs associated with refinancing its debt, which extended its maturities out several years. If we adjust for that special item, the company would have turned a profit of $2 million, $0.02 per share.
  • Meanwhile, MRC Global's underlying profitability as measured by adjusted EBITDA was $56 million, which is an improvement from $44 million last quarter and $24 million in the year-ago period.

What management had to say

CEO Andrew Lane commented on the quarter saying, "Third quarter results were strong, delivering adjusted gross margin of 19% and adjusted EBITDA of $56 million, as we worked through the disruption of two major hurricanes and helped our customers get their operations back online."

Lane's central message was that MRC's underlying business was profitable during the quarter. That's despite the impact from two hurricanes as well as the continued weakness in the oil market due to low oil prices.

Lane also noted in the earnings release that the company was able to capitalize on favorable market conditions in the quarter to refinance its senior secured term loan and asset-based lending facility, which extended those maturities to 2024 and 2022, respectively. While the refinancing cost the company its chance to report a profit in the third quarter, the move will improve profitability in future quarters by reducing its interest expenses. Further, the company now has more flexibility to execute its long-term strategy as energy markets improve.

Looking forward

One sign of MRC Global's belief that market conditions will continue getting better is the board's decision to authorize a $100 million share buyback that will expire at the end of next year. This decision restarts cash returns to shareholders, which have been on hold since the company completed its previous $125 million buyback in the first quarter of 2017. However, with a stronger balance sheet due to the recent refinancing, MRC has the capital it needs to finance growth, which now gives it the flexibility to start returning value to investors again.

Matthew DiLallo has the following options: short December 2017 $15 puts on MRC Global. The Motley Fool recommends MRC Global. The Motley Fool has a disclosure policy.