The downturn in the energy market is causing a significant slowdown in spending for oil-field equipment like pipes, valves, and fittings, which is bad news for the leading distributor of those products to the energy industry. That was abundantly clear by taking a look at MRC Global's (MRC -1.06%) fourth-quarter report, which was released after the market closed on Monday. That report showed a steep drop-off in sales, and an even steeper drop in earnings.

MRC Global results: The raw numbers


Q4 2015 Actuals

Q4 2014 Actuals

Growth (YOY)


$967.1 million

$1.5 billion


Adjusted Net Income

$12.0 million

$33.8 million


Adjusted EPS




Data source: MRC Global

What happened with MRC Global this quarter?
MRC Global was hurt by reduced customer activity across all segments and sectors.

  • MRC Global's revenue slumped not only 36% year over year, but it was down 10% from just last quarter. None of its segments or sectors were spared. Year-over-year sales by segment dropped by 32.8% in the U.S., 57.7% in Canada, and 38.2% internationally. Meanwhile, looking at sales by sector, upstream sales dropped 38%, midstream sales slumped 30.1%, while downstream sales were the most resilient, only dropping 17.3%.
  • Much of this sales decline was due to the weaker oil prices, which sapped the spending capacity of oil and gas companies. In addition to that the stronger U.S. dollar also hurt revenue, with it impacting MRC Global's sales in Canada by $11 million and by $19 million in its international segment.
  • Profitability was affected primarily due to weaker sales, though sales, general, and administrative (SG&A) expenses were higher year over year as a percentage of sales. That's even after SG&A expenses fell by 16% on an absolute basis due to the company's cost reduction measures.
  • Despite weak profitability, operating cash flow was actually fairly solid at $209 million.

What management had to say
CEO Andrew Lane, discussing the company's results, said,

We generated $690 million of cash from operations in 2015, and combined with the proceeds from our preferred stock offering, we reduced net debt by $974 million exceeding the goals we set out at the beginning of the year. We also made progress under our stock repurchase program, as our solid balance sheet and liquidity position allowed us to repurchase $11.5 million in stock during the fourth quarter. The strategic divestiture of our U.S. OCTG business is the culmination of our multi-year strategy to reduce our exposure to upstream drilling volatility.

After being a cash consumer in 2014, MRC Global made it a point to focus on cash flow generation in 2015, generating nearly $690 million in cash. That gave it a good head start on its other goal, which was to improve its balance sheet. Its financial position vastly improved during the year with the company taking out nearly $1 billion in net debt, reducing is overall long-term debt to just over $500 million. Because of that the company is in a much stronger financial position to weather the current storm in the oil industry.

Looking forward
That storm is expected to continue raging in 2016, which MRC Global expects to be "challenging." Its focus will be on reducing its costs so that it can continue to generate cash flow and further strengthen its balance sheet.