Houston, TX - MRC Global Inc. announced fourth quarter and full year 2013 results and introduced 2014 guidance.
The company's sales increased 3% from $1.31 billion in the fourth quarter of 2012 to $1.34 billion in the same quarter of 2013. The increase of $37 million came from the acquisitions of Production Specialty Services Inc. (PSS), Flow Control Products (Flow Control) and Flangefitt Stainless Ltd. (Flangefitt), all of which are primarily in the upstream sector.
Net income for the fourth quarter of 2013 was $23.3 million, or $0.23 per diluted share, compared to a fourth quarter 2012 net loss of ($6.4) million, or ($0.06) per diluted share.
Adjusted diluted EPS for the fourth quarter of 2013 was $0.32 per diluted share and excludes the impact of a total of $9.7 million in after-tax charges ($0.09 per diluted share) related to re-pricing of debt, the accelerated recognition of equity-based compensation and an increase in valuation allowances for certain deferred tax assets. Adjusted diluted EPS for the fourth quarter of 2012 was $0.55 per diluted share and excluded $62.8 million in after-tax charges ($0.61 per diluted share) related to the purchase and early retirement of a portion of MRC Global's previously outstanding senior secured notes and the termination of a pension plan in the Netherlands. See 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, "While 2013 didn't result in the growth we had initially expected, we completed our strategic rebalance of OCTG which resulted in a $251 million drop in annual revenue compared to 2012 but accomplished our goal of reducing our exposure to our most volatile, lowest margin product line."
Mr. Lane also noted, "The year finished on a positive note, with the highest sales quarter of the year, up 2% from the previous quarter despite poor weather and fewer billing days. We were successful in expanding several of our major customer framework agreements, adding international scope for future growth. We are also very pleased with our strategic acquisitions of Flangefitt in December 2013 and Stream in January 2014. These two acquisitions significantly increase our international scale as well as add new offshore and project capabilities in the upstream sector to our business model. We successfully managed our working capital in the slower than expected year, generating $324 million in cash flow from operations in 2013 and reduced our long-term debt."
In conclusion, Mr. Lane stated, "We are looking forward to returning to a year of growth in 2014, with annual sales expected to grow in the high single digits."
MRC Global's fourth quarter 2013 gross profit of $226.0 million declined to 16.8% of sales from fourth quarter 2012 gross profit of $258.3 million, or 19.8% of sales. Fourth quarter 2013 reflected a charge of $1.1 million in cost of sales relating to the use of the last-in, first-out (LIFO) method of inventory cost accounting while fourth quarter 2012 reflected a benefit of $27.2 million. Gross profit was also negatively impacted by pricing pressure and product mix changes in the line pipe product line.
Selling, general and administrative expenses were $167.4 million for the fourth quarter of 2013 compared to $154.2 million in the same period of 2012. This increase included a $5.2 million charge associated with the accelerated recognition of equity-based compensation expense as a result of the November 2013 secondary common stock offering in which our private equity sponsor sold its remaining interest in MRC Global. The increase also included $5.0 million of incremental expense from the PSS, Flow Control and Flangefitt acquisitions as well as costs associated with our ongoing acquisition-related activities.
Adjusted EBITDA was $87.2 million for the fourth quarter of 2013 compared to $99.2 million for the same period in 2012. See reconciliation of adjusted EBITDA (a non-GAAP measure) to net income (a GAAP measure) in this release.
Interest expense for the fourth quarter of 2013 was $14.7 million as compared to $19.9 million in the fourth quarter of 2012. The decrease in interest expense was the result of lower interest rates from refinancing the company's senior secured notes in November 2012 and the re-pricing of the senior secured Term Loan B in November 2013, as well as lower average debt balances in 2013.
Sales by Segment
U.S. sales in the fourth quarter of 2013 were up 6% to $1.01 billion from the same quarter in 2012. A majority of the increase was due to the acquisitions of PSS and Flow Control. In addition, the company experienced organic growth in the sales of its gas utility and line pipe product lines.
Canadian sales in the fourth quarter of 2013 were $189.3 million, down 10.6% from the same quarter in 2012. Adjusting for a 5% decline in the Canadian dollar, the company experienced an underlying reduction in sales of approximately 6% due to a lower level of project-related sales.
International sales in the fourth quarter of 2013 were $143.1 million, an increase of 1.8% from the same period in 2012. The company experienced growth in sales from Europe and Asia, but were partially offset by a decline in sales from Australasia.
Sales by Sector
Upstream sales in the fourth quarter of 2013 increased 5.5% from the fourth quarter of 2012 to $606.0 million, or 45% of total sales. The improvement in upstream sales is substantially attributable to the acquisitions of PSS and Flow Control, partially offset by weak sales in Canada.
Midstream sales in the fourth quarter of 2013 increased 7.2% from the fourth quarter of 2012 to $392.2 million, or 29% of total sales. Spending from transmission and gas utility customers was up by 4% and 14%, respectively.
Downstream sales in the fourth quarter of 2013 decreased 5.6% from the fourth quarter of 2012 to $346.0 million, or 26% of total sales. The company continued to experience weak market conditions in the international and Canadian segments although the company experienced growth in the U.S.
Debt outstanding was $986.8 million at December 31, 2013, a reduction of $57 million during the fourth quarter of 2013. Cash provided by operations was $82.2 million during the fourth quarter of 2013 and $323.6 million for the year ended December 31, 2013.