Houston, TX - MRC Global Inc. announced first quarter 2014 results.
The company's sales were $1,306 million for the first quarter of 2014, which are unchanged from the first quarter of 2013 and 3% lower than the fourth quarter of 2013. Net income for the first quarter of 2014 was $23.5 million, or $0.23 per diluted share, compared to a first quarter 2013 net income of $46.2 million, or $0.45 per diluted share.
Adjusted diluted earnings per share (EPS) for the first quarter of 2014 was $0.28 per diluted share and excludes the impact of a $5.0 million after-tax charge ($0.05 per diluted share) related to the sale of the company's progressive cavity pump (PCP) distribution and servicing business in Canada. There were no adjustments to the first quarter of 2013 diluted EPS of $0.45 per diluted share. Please refer to the reconciliation of adjusted net income (a non-GAAP measure) to net income (a GAAP measure) included in this release.
Andrew R. Lane, MRC Global's chairman, president and chief executive officer, stated, "As we previously discussed, inclement weather negatively impacted first quarter 2014 sales in some regions of the U.S. in January and February. However, we saw an increase in activity late in the quarter, which contributed to organic growth in the upstream sector across all segments. The outlook for the remainder of 2014 is encouraging. Our backlog at the end of the first quarter was $1.03 billion, an all-time record for our company." Mr. Lane also commented, "We are pleased to have completed the acquisition of Stream in the first quarter and are looking forward to their contributions to MRC Global."
MRC Global's first quarter 2014 gross profit of $232.1 million declined to 17.8% of sales from first quarter 2013 gross profit of $246.6 million, or 18.9% of sales. The 110 basis point decline reflected the impact of deflation in the company's line pipe product group as well as the company's last-in, first-out (LIFO) inventory costing methodology. First quarter 2014 gross profit reflected a charge of $1.3 million in cost of sales relating to the use of the LIFO method of inventory cost accounting, while the first quarter of 2013 reflected a benefit of $3.1 million.
Selling, general and administrative (SG&A) expenses were $171.4 million for the first quarter of 2014 compared to $160.8 million in the same period of 2013. The increase included $18 million of incremental expense from the acquisitions of Stream AS (Stream) in January 2014 as well as Flangefitt Stainless Ltd. (Flangefitt) and Flow Control Products (Flow Control) in the second half of 2013. Excluding these acquisitions, SG&A was down $7.4 million in the first quarter of 2014 compared to the first quarter of 2013 primarily due to the disposition of the PCP distribution and servicing business in Canada.
Adjusted EBITDA was $84.0 million for the first quarter of 2014 compared to $103.9 million for the same period in 2013. Please refer to the reconciliation of adjusted EBITDA (a non-GAAP measure) to net income (a GAAP measure) in this release.
Interest expense for the first quarter of 2014 was $15.1 million as compared to $15.3 million in the first quarter of 2013. The benefit of the repricing of the Senior Secured Term Loan B in November 2013 was partially offset by higher average debt balances in the first quarter of 2014 related to the acquisition of Stream.
Sales by Segment
U.S. sales in the first quarter of 2014 were down 1.8% to $948.0 million from the same quarter in 2013. The decline was attributable to reduced line pipe sales as a result of lower line pipe pricing and reduced customer capital spending including the impact of inclement weather in the company's Eastern region in the first quarter of 2014. This decline was partially offset by an increase in the company's other product lines as well as $5.6 million of sales related to the company's July 2013 acquisition of Flow Control. From a sector perspective, the U.S. experienced organic growth in the upstream and downstream sectors of 2.8% and 1.0%, respectively.
Canadian sales in the first quarter of 2014 were $166.2 million, down 18.7% from the same quarter in 2013. The decline was primarily attributable to the sale of the PCP distribution and servicing business, which reduced sales by $23 million. The remaining 7.4% reduction in sales was due to a decline in the Canadian dollar relative to the U.S. dollar.
International sales in the first quarter of 2014 were $191.5 million, an increase of 41.9% from the same period in 2013. The increase was due primarily to sales from Stream and Flangefitt of $64.3 million for the first quarter of 2014. Organically, excluding the decline in the Australian dollar compared to the U.S. dollar, International sales remained relatively flat when comparing first quarter of 2014 to first quarter of 2013.
Sales by Sector
Upstream sales in the first quarter of 2014 increased 9.7% from the first quarter of 2013 to $634.8 million, or 49% of total sales. The improvement in upstream sales was substantially attributable to the acquisitions completed in 2013 and 2014, as well as organic growth of 2.0%, partially offset by the sale of the PCP distribution and servicing business in Canada.
Midstream sales in the first quarter of 2014 decreased 11.1% from the first quarter of 2013 to $307.4 million, or 23% of total sales. Sales to both transmission and gas utility customers were down by 16.9% and 1.6%, respectively. Reduced midstream sales were influenced by lower line pipe activity in the U.S.
Downstream sales in the first quarter of 2014 decreased 4.6% from the first quarter of 2013 to $363.5 million, or 28% of total sales. The company experienced weak market conditions in the Canadian and International segments, partially offset by modest growth in the U.S.
Debt outstanding was $1,314 million at March 31, 2014, an increase of $327.4 million during the first quarter of 2014, primarily due to the acquisition of Stream. Cash used in operations was $74.3 million during the first quarter of 2014 primarily due to timing of receivables collections and an increase in inventory purchases in anticipation of increased sales levels.
Calendar Year 2014 Guidance
MRC Global's expected full year 2014 results, excluding the impact of any future acquisitions, is unchanged from last quarter, as presented below.
$ 400 million
$ 450 million
Cash flow from operations
$ 200 million