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MRC GLOBAL INC. 10-K Analysis & Summary – 3/14/2025

⚠️This is not investment advice.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️

MRC Global Inc.

Filing date:

03/14/2025

TLDR:

ELI5:

MRC Global, a pipe and valve company, had a tough year with lower sales, but they’re trying to grow in new energy areas. They also found a mistake in how they count inventory, which they need to fix.

Accession #:

0001437749-25-007707

Published on

Analyst Summary

  • MRC Global’s sales decreased by 8% year-over-year, primarily due to lower project activity in the PTI and Gas Utilities sectors.
  • Operating margin decreased from 5.7% to 4.5%, reflecting higher SG&A expenses and lower sales volume.
  • The company reported a material weakness in internal controls over inventory cycle counts.
  • A pre-tax loss of approximately $22 million was recognized on the sale of the Canadian operations.
  • The company is focused on growth in the DIET sector, particularly in energy transition projects, and is investing in IT infrastructure, including a new ERP system.
  • Gross margin remained relatively stable at 20.6%, indicating effective cost management despite lower sales.
  • Cash position decreased significantly, likely due to debt repayment and share repurchases, while total debt increased due to a new term loan used to repurchase preferred stock.
  • Operating cash flow increased due to efficient working capital management, while financing cash flow showed a significant outflow due to preferred stock repurchase and debt payments.
  • Adjusted EBITDA decreased by $49 million or 20% from 2023, indicating a decline in the company’s core profitability.
  • All three segments (Gas Utilities, DIET, and PTI) experienced a decline in sales, indicating a broad-based downturn in the company’s business.

Opportunities and Risks

  • Opportunity: Increased activity in the downstream, industrial, and energy transition (DIET) sectors presents growth opportunities.
  • Opportunity: Government incentives and customer commitments to net-zero emissions could drive demand for MRC Global’s products in energy transition projects.
  • Opportunity: Investments in IT systems and distribution infrastructure could improve operational excellence and reduce costs.
  • Opportunity: Consolidation in the energy industry could lead to larger companies seeking sole-source PVF providers like MRC Global.
  • Risk: Decreased capital expenditures in the energy and industrial sectors could negatively impact demand for MRC Global’s products due to an economic slowdown.
  • Risk: Fluctuations in oil and gas prices could affect customer spending in the PTI sector.
  • Risk: Unexpected supply shortages or cost increases could impact profitability.
  • Risk: The increasing reliance on technology exposes the company to potential cyber incidents.
  • Risk: Asbestos-related lawsuits and product liability claims could result in significant liabilities.
  • Risk: Tariffs on steel and other imported products could increase costs and reduce demand.
  • Risk: A rapid shift away from oil and gas could reduce sales to traditional energy customers.

Potential Implications

Company Performance

  • Continued focus on cost management and working capital optimization is crucial for improving financial performance.
  • Success in the DIET sector and energy transition projects will be vital for future growth.
  • Addressing the material weakness in internal controls is necessary to ensure the reliability of financial reporting.
  • The company’s ability to manage debt and asbestos-related claims will impact its long-term financial stability.

Stock Price

  • Investors should monitor revenue growth in the DIET sector and progress on ERP system implementation.
  • The potential impact of economic conditions, oil and gas price volatility, and government policies on the company’s financial performance should be assessed.
  • The effectiveness of the share repurchase program and its impact on the company’s financial flexibility should be evaluated.
  • The company’s P/E ratio of 37.1 is above the industry average, suggesting that the stock may be overvalued.

MRC Global Inc. (MRC) 10-K Filing Analysis – Fiscal Year 2024

Executive Summary

This report analyzes MRC Global Inc.’s 10-K filing for the fiscal year ended December 31, 2024. MRC Global, a leading global distributor of pipe, valves, and fittings (PVF) and other infrastructure products, faces challenges including declining sales and operating income, primarily due to reduced activity in the PTI and Gas Utilities sectors. The sale of the Canadian business is complete, but resulted in a loss. Despite these headwinds, the company is focused on growth in the DIET sector, particularly in energy transition projects, and is investing in technology to improve operational efficiency. The company’s financial health appears stable, but investors should monitor the impact of economic conditions, oil and gas price volatility, and the success of the company’s strategic initiatives. A material weakness in internal controls over inventory cycle counts is a concern. Overall, a cautious approach is warranted, suggesting a “Hold” rating.

Company Overview

MRC Global Inc. (MRC) is a global distributor of PVF and other infrastructure products and services, serving the gas utility, energy, and industrial sectors. The company operates through two segments: U.S. and International. Key end-markets include gas utilities, downstream, industrial and energy transition (DIET), and production and transmission infrastructure (PTI). Recent developments include the sale of the Canadian operations and ongoing investments in IT infrastructure, including a new ERP system.

Detailed Analysis

Management’s Discussion and Analysis (MD&A)

The MD&A highlights a decrease in sales and operating income compared to the previous year. Management attributes this to lower project activity in the PTI and Gas Utilities sectors, partially offset by growth in the International segment. The narrative emphasizes growth opportunities in the DIET sector, particularly in energy transition projects. However, the MD&A also acknowledges risks related to economic conditions, oil and gas price volatility, and potential impacts from the new U.S. presidential administration’s policies. The tone is cautiously optimistic, balancing growth prospects with economic uncertainties.

Financial Statement Analysis

Key Ratios and Trends

Ratio 2024 2023 2022 Trend
Gross Margin 20.6% 20.5% 18.3% Increasing
Operating Margin 4.5% 5.7% 4.2% Decreasing
Revenue Growth -8% 2% N/A Decreasing

Revenue: Sales decreased by 8% year-over-year, indicating a slowdown in demand across key sectors.
Gross Margin: Gross margin remained relatively stable, suggesting effective cost management despite lower sales.
Operating Margin: Operating margin decreased, reflecting higher SG&A expenses and lower sales volume.

Balance Sheet Highlights

Asset/Liability 2024 (Millions) 2023 (Millions)
Cash and Cash Equivalents $63 $131
Accounts Receivable, Net $378 $410
Inventory, Net $415 $511
Goodwill $264 $264
Total Debt $387 $301

Cash Position: Decreased significantly, likely due to debt repayment and share repurchases.
Inventory: Decreased, reflecting lower sales and improved supply chain management.
Debt: Increased, reflecting the new term loan used to repurchase preferred stock.

Cash Flow Analysis

Cash Flow Type 2024 (Millions) 2023 (Millions)
Operating Activities $276 $181
Investing Activities ($27) ($14)
Financing Activities ($314) ($67)

Operating Cash Flow: Increased, driven by efficient working capital management.
Investing Cash Flow: Increased use of cash, primarily related to the ERP system implementation.
Financing Cash Flow: Significant cash outflow due to preferred stock repurchase and debt payments.

Red Flags and Uncommon Metrics

  • Material Weakness: The identified material weakness in internal controls over inventory cycle counts raises concerns about the reliability of financial reporting.
  • Loss on Sale of Canada Business: The pre-tax loss of approximately $22 million on the sale of the Canadian operations is a negative signal.
  • Share Repurchase Program: While potentially beneficial for shareholders, the $125 million share repurchase program increases debt and reduces cash reserves.

Risk and Opportunity Assessment

Risks

  • Economic Slowdown: Decreased capital expenditures in the energy and industrial sectors could negatively impact demand for MRC Global’s products.
  • Oil and Gas Price Volatility: Fluctuations in oil and gas prices could affect customer spending in the PTI sector.
  • Supply Chain Disruptions: Unexpected supply shortages or cost increases could impact profitability.
  • Cybersecurity Threats: The increasing reliance on technology exposes the company to potential cyber incidents.
  • Legal and Liability Risks: Asbestos-related lawsuits and product liability claims could result in significant liabilities.
  • Tariffs: Tariffs on steel and other imported products could increase costs and reduce demand.
  • Energy Transition: A rapid shift away from oil and gas could reduce sales to traditional energy customers.

Opportunities

  • DIET Sector Growth: Increased activity in the downstream, industrial, and energy transition sectors presents growth opportunities.
  • Energy Transition Projects: Government incentives and customer commitments to net-zero emissions could drive demand for MRC Global’s products in energy transition projects.
  • Operational Efficiency: Investments in IT systems and distribution infrastructure could improve operational excellence and reduce costs.
  • Market Consolidation: Consolidation in the energy industry could lead to larger companies seeking sole-source PVF providers like MRC Global.

Conclusion and Actionable Insights

MRC Global faces a challenging environment with declining sales and operating income. While the company is focused on growth in the DIET sector and is investing in technology to improve operational efficiency, economic uncertainties and potential impacts from government policies pose risks. The material weakness in internal controls is a concern that needs to be addressed.

Overall Assessment: Hold. The company’s financial health appears stable, but investors should monitor the impact of economic conditions, oil and gas price volatility, and the success of the company’s strategic initiatives.

Recommendations:

  • Monitor Key Performance Indicators: Track revenue growth in the DIET sector, progress on ERP system implementation, and remediation of the material weakness in internal controls.
  • Assess Risk Factors: Evaluate the potential impact of economic conditions, oil and gas price volatility, and government policies on the company’s financial performance.
  • Evaluate Capital Allocation: Assess the effectiveness of the share repurchase program and its impact on the company’s financial flexibility.

Financial Analysis of MRC Global Inc. (2024)

1. Commentary

MRC Global’s financial performance in 2024 reflects a challenging year with decreased revenue and profitability compared to 2023. The decline in sales, particularly in the U.S. market, significantly impacted the company’s operating income and net income. While international sales showed growth, it was insufficient to offset the domestic downturn. Strategic initiatives, including cost management and working capital optimization, will be crucial for MRC Global to improve its financial position in the coming year. The company’s significant debt and ongoing asbestos-related claims remain key risk factors.

2. Financial Ratio and Metric Analysis

Profitability

  • Gross Profit Margin

    • Metric: 20.6% (2024: $620 / $3,011), (2023: $670 / $3,266 = 20.5%)
    • Trend: Increased by 0.1% from 20.5% in 2023.
    • Industry: The industry average gross profit margin for industrial distributors typically ranges from 20% to 30%. MRC Global’s margin is at the lower end of this range.
  • Operating Profit Margin

    • Metric: 4.5% (2024: $135 / $3,011), (2023: $188 / $3,266 = 5.8%)
    • Trend: Decreased by 1.3% from 5.8% in 2023.
    • Industry: An operating profit margin between 5% and 10% is considered average for the industry. MRC Global’s operating margin is below average.
  • Net Profit Margin

    • Metric: 1.8% (2024: $55 / $3,011), (2023: $114 / $3,266 = 3.5%)
    • Trend: Decreased by 1.7% from 3.5% in 2023.
    • Industry: The average net profit margin for industrial distributors is typically between 2% and 5%. MRC Global’s net profit margin is below average.
  • Return on Assets (ROA)

    • Metric: 3.4% (2024: $55 / $1,624), (2023: $114 / $1,886 = 6.0%)
    • Trend: Decreased by 2.6% from 6.0% in 2023.
    • Industry: An ROA of 5% or higher is generally considered good. MRC Global’s ROA is below average.
  • Return on Equity (ROE)

    • Metric: 10.7% (2024: $55 / $516), (2023: $114 / $488 = 23.4%)
    • Trend: Decreased by 12.7% from 23.4% in 2023.
    • Industry: An ROE of 10% or higher is generally considered good. MRC Global’s ROE is around average.
  • Earnings Per Share (EPS) – Basic

    • Metric: $0.31 (2024), $1.07 (2023)
    • Trend: Decreased by $0.76 from $1.07 in 2023.
    • Industry: N/A
  • Earnings Per Share (EPS) – Diluted

    • Metric: $0.30 (2024), $1.05 (2023)
    • Trend: Decreased by $0.75 from $1.05 in 2023.
    • Industry: N/A

Liquidity

  • Current Ratio

    • Metric: 1.8 (2024: $921 / $508), (2023: $1,155 / $783 = 1.5)
    • Trend: Increased by 0.3 from 1.5 in 2023.
    • Industry: A current ratio between 1.5 and 2.0 is generally considered healthy. MRC Global’s current ratio is within this range.
  • Quick Ratio (Acid-Test Ratio)

    • Metric: 1.0 (2024: ($921 – $415) / $508), (2023: ($1,155 – $511) / $783 = 0.8)
    • Trend: Increased by 0.2 from 0.8 in 2023.
    • Industry: A quick ratio of 1.0 or higher is generally considered acceptable. MRC Global’s quick ratio is at the lower end of this range.
  • Cash Ratio

    • Metric: 0.1 (2024: $63 / $508), (2023: $131 / $783 = 0.2)
    • Trend: Decreased by 0.1 from 0.2 in 2023.
    • Industry: A cash ratio of 0.5 or higher is generally considered ideal, but acceptable cash ratio varies greatly by industry. MRC Global’s cash ratio is low.

Solvency/Leverage

  • Debt-to-Equity Ratio

    • Metric: 0.7 (2024: $387 / $516), (2023: $301 / $488 = 0.6)
    • Trend: Increased by 0.1 from 0.6 in 2023.
    • Industry: A debt-to-equity ratio of 1.0 or lower is generally considered healthy. MRC Global’s debt-to-equity ratio is below this threshold.
  • Debt-to-Assets Ratio

    • Metric: 0.2 (2024: $387 / $1,624), (2023: $301 / $1,886 = 0.2)
    • Trend: No change from 0.2 in 2023.
    • Industry: A debt-to-assets ratio below 0.5 is generally considered good. MRC Global’s debt-to-assets ratio is well below this threshold.
  • Interest Coverage Ratio (Times Interest Earned)

    • Metric: 5.2 (2024: $135 + $26 / $26), (2023: $188 + $32 / $32 = 6.9)
    • Trend: Decreased by 1.7 from 6.9 in 2023.
    • Industry: An interest coverage ratio of 3.0 or higher is generally considered safe. MRC Global’s interest coverage ratio is above this threshold.

Activity/Efficiency

  • Inventory Turnover

    • Metric: 5.8 (2024: $2,391 / $415), (2023: $2,596 / $511 = 5.1)
    • Trend: Increased by 0.7 from 5.1 in 2023.
    • Industry: An inventory turnover ratio between 4 and 6 is considered average. MRC Global’s inventory turnover is within this range.
  • Days Sales Outstanding (DSO)

    • Metric: 46 (2024: ($378 / $3,011) * 365), (2023: ($410 / $3,266) * 365 = 46)
    • Trend: No change from 46 in 2023.
    • Industry: A DSO between 30 and 45 days is considered average. MRC Global’s DSO is slightly above this range.
  • Days Payable Outstanding (DPO)

    • Metric: 50 (2024: ($329 / $2,391) * 365), (2023: ($340 / $2,596) * 365 = 48)
    • Trend: Increased by 2 from 48 in 2023.
    • Industry: A DPO between 30 and 45 days is considered average. MRC Global’s DPO is slightly above this range.
  • Asset Turnover

    • Metric: 1.9 (2024: $3,011 / $1,624), (2023: $3,266 / $1,886 = 1.7)
    • Trend: Increased by 0.2 from 1.7 in 2023.
    • Industry: An asset turnover ratio between 1.0 and 2.0 is considered average. MRC Global’s asset turnover is within this range.

Valuation

  • Price-to-Earnings Ratio (P/E)

    • Metric: 37.1 (2025-03-14: $11.50 / $0.31)
    • Trend: N/A
    • Industry: The average P/E ratio for the industry is around 15-25. MRC Global’s P/E ratio is above average.
  • Price-to-Book Ratio (P/B)

    • Metric: 2.3 (2025-03-14: ($11.50 * 85.1 million) / $516 million)
    • Trend: N/A
    • Industry: The average P/B ratio for the industry is around 1-3. MRC Global’s P/B ratio is within this range.
  • Price-to-Sales Ratio (P/S)

    • Metric: 0.3 (2025-03-14: ($11.50 * 85.1 million) / $3,011 million)
    • Trend: N/A
    • Industry: The average P/S ratio for the industry is around 0.5-1. MRC Global’s P/S ratio is below average.
  • Enterprise Value to EBITDA (EV/EBITDA)

    • Metric: 7.3 (Market Cap: $11.50 * 85.1 million = $978.7 million, EV = $978.7 + $387 – $63 = $1,302.7 million, EV/EBITDA = $1,302.7 / $202)
    • Trend: N/A
    • Industry: The average EV/EBITDA ratio for the industry is around 10-15. MRC Global’s EV/EBITDA ratio is below average.

Growth Rates

  • Revenue Growth

    • Metric: -8.1% (2024: $3,011, 2023: $3,266)
    • Trend: N/A
    • Industry: N/A
  • Net Income Growth

    • Metric: -51.8% (2024: $55, 2023: $114)
    • Trend: N/A
    • Industry: N/A
  • EPS Growth

    • Metric: -71.0% (2024: $0.31, 2023: $1.07)
    • Trend: N/A
    • Industry: N/A

Other Relevant Metrics

  • Adjusted EBITDA

    • Metric: $202 million (2024), $251 million (2023)
    • Trend: Decreased by $49 million or 20% from 2023.
    • Significance: Adjusted EBITDA is a non-GAAP measure used by the company to present a clearer picture of its operating performance by excluding certain non-recurring items. The decrease indicates a decline in the company’s core profitability.
  • Segment Performance

    • Gas Utilities: Sales decreased from $1,193 million in 2023 to $1,098 million in 2024.
    • DIET: Sales decreased from $1,040 million in 2023 to $970 million in 2024.
    • PTI: Sales decreased from $1,033 million in 2023 to $943 million in 2024.
    • Significance: All three segments experienced a decline in sales, indicating a broad-based downturn in the company’s business.

⚠️ This is an experimental project and this report is for informational purposes only and should not be considered investment advice. Conduct your own thorough research and consult with a qualified financial advisor before making any investment decisions. ⚠️