Houston-based MRC Global, which brands itself as the largest global distributor of PVF products and services, reported its 2020 third quarter financial results on Wednesday, showing that year-over-year sales are still down significantly, while sequential sales are down to a lesser degree.
MRC — No. 7 on Industrial Distribution's 2020 Big 50 List — posted total Q3 sales of $585 million, down 38 percent year-over-year (YoY) and down 4 percent from Q2 of this year. It follows a similar YoY decline of 39 percent in Q2.
The company said that sequentially, the downstream and industrial and the gas utilities sectors each had an increase in sales, while upstream production and midstream pipeline sectors each had a decline. On a YoY basis, the major sales decrease was across all sectors and segments amid the impact of the COVID-19 pandemic and lower commodity prices that combined to significantly reduce customer spending.
MRC's Q3 gross profit margin was 19.5 percent, up from 13.1 percent in Q2 and 18.5 percent in Q3 2019. The company's Q3 operating profit of $14 million was down from $37 million a year earlier and a $289 million loss in Q2 — which included a $284 million restructuring and impairment charge.
After closing 11 facilities during Q2 as part of its cost-savings efforts, MRC said it closed or consolidated nine in Q3 and plans to close another six in Q4 for a total of 28 closures this year. The company expects to achieve more than $110 million of normalized cost savings for 2020 compared to 2019, with about two-thirds of it being structural in nature. For the full year, MRC expects to generate operating cash flow of more than $220 million, with a net debt balance of less than $300 million.
As of Sept. 30, MRC had approximately 2,700 employees worldwide across 20 countries, along with 120 branches and 13 regional distribution centers. That employee count is down the 2,847 the company said it had on June 30.
"The resiliency of our business model, which focuses on diversified sectors, was evident this quarter," said MRC chief executive Andrew Lane, who will retire at the end of 2021. "Two of our sectors, gas utilities and downstream and industrial, which make-up 68 percent of our third quarter revenue, were both up sequentially. As a result, total revenue was down only 3 percent sequentially this quarter, better than expectations.
Lane added that e-commerce comprised 48 percent of the company's North American revenue in September, an all-time high for the company. E-commerce comprised 33 percent of MRC's total Q3 revenue, compared to 28 percent for all of 2019.
"We continue to focus on managing the business through these difficult market conditions by aggressively reducing costs, generating cash and reducing debt," Lane said.
After reporting 27 employee cases of COVID-19 in Q2, MRC said it currently has 11 such cases, or 0.4 percent of its global workforce. The company has not had to close any facilities for COVID-19 safety reasons.
By MRC geography in Q3:
- US sales of $463 million were down 39 YoY and down 2.3 percent from Q2. Gas utilities' sector sales were down or 4 YoY, primarily due to non-recurring work. Downstream and industrial sector sales declined or 40 percent YoY due to delayed or reduced maintenance spending from lower demand as well as non-recurring turnarounds. Upstream production sector sales decreased or 68 percent primarily due to reduced spending by customers and a 74 percent reduction in well completions. Midstream pipeline sector sales declined 54 percent due to lower production levels and reduced demand for infrastructure.
- Canadian sales of $27 million were down 53 YoY and down 3.6 percent from Q2, driven primarily by the upstream production sector, which was adversely affected by the pandemic and associated reduced demand.
- International sales of $95 million were down 22 YoY and 5 percent from Q2, driven primarily by reduced spending in the upstream sector followed by the downstream and industrials sector due to the lower activity levels associated with reduced demand.
By MRC sales sector in Q3:
- Gas utilities sales of $208 million (36 percent of total) were down 4 percent YoY, but up 1 percent from Q2 due to market share gains and some customers increasing spending post-pandemic restrictions.
- Downstream and industrial sales of $185 million (32 percent of total) were down 35 percent YoY, but up 5 percent from Q2 as customers completed repair, maintenance and turnaround work post-pandemic restrictions.
- Upstream production sales of $118 million (20 percent of total) were down 59 YoY and identical to Q2. The YoY decrease was across all segments, led by the US.
- Midstream pipeline sales of $74 million (12 percent of total) were down 52 percent YoY and identical to Q2, driven by the US segment.