Houston, TX - MRC Global Inc. announced third quarter 2013 results. MRC Global's sales of $1.31 billion in the third quarter of 2013 decreased 9.5% from $1.45 billion in the third quarter of 2012 due, in part, to a planned reduction in the company's lower margin oil country tubular goods (OCTG) business. OCTG represented 8.0% of sales in the third quarter of 2013 compared to 12.8% of sales in the third quarter of 2012. Excluding OCTG, sales were lower across all sectors and segments. The decline in sales was partially offset by the acquisitions of Production Specialty Services Inc. (PSS) and Flow Control Products (Flow Control), which together contributed $33 million of revenue in the third quarter of 2013. Net income for the third quarter of 2013 was $38.8 million, or $0.38 per diluted share, compared to third quarter 2012 net income of $55.5 million, or $0.54 per diluted share.
Adjusted diluted EPS for the third quarter of 2013 was $0.40 per diluted share and excludes the impact of a $1.3 million after-tax charge ($0.01 per diluted share) related to the bankruptcy of a workers' compensation insurance carrier, which required the company to assume the obligation for existing workers' compensation claims, as well as a $1.3 million after-tax charge ($0.01 per diluted share) associated with the retirement of an executive officer of the company.
Adjusted diluted EPS for the third quarter of 2012 was $0.61 per diluted share and excludes a $6.5 million after-tax charge ($0.07 per diluted share) related to the purchase and early retirement of a portion of MRC Global's previously outstanding senior secured notes. See reconciliation of adjusted net income (a non-GAAP measure) to net income (a GAAP measure) presented as Supplemental Information in the financial statements included in this release.
Andrew R. Lane, MRC Global's chairman, president and chief executive officer, stated, "Our third quarter results were in line with our expectations and reflect improved activity levels and customer spending on a sequential basis, although the year-over-year comparisons were challenged by a robust third quarter of 2012. We had strong free cash flow this quarter as reflected in the reduction of our outstanding debt to $1.04 billion."
MRC Global's third quarter 2013 gross profit of $238.3 million declined to 18.1% of sales from third quarter 2012 gross profit of $277.2 million, or 19.1% of sales. Third quarter 2013 and 2012 results each benefited from a reduction in cost of sales relating to the use of the last-in, first-out (LIFO) method of inventory cost accounting of $5.7 million and $15.4 million, respectively.
Selling, general and administrative expenses were $160.9 million for the third quarter of 2013 compared to $155.0 million in the same period of 2012. This increase was primarily attributable to the inclusion of $5.0 million of incremental expense from the acquisitions of PSS and Flow Control in December 2012 and July 2013, respectively, as well as $2.0 million of expenses associated with the retirement of an executive officer of the company.
Adjusted EBITDA was $96.4 million for the third quarter of 2013 compared to $125.3 million for the same period in 2012. See reconciliation of adjusted EBITDA (a non-GAAP measure) to net income (a GAAP measure) presented as Supplemental Information in the financial statements included in this release.
Interest expense for the third quarter of 2013 was $15.5 million as compared to $28.2 in the third quarter of 2012; the decrease was largely due to refinancing the company's senior secured notes in November 2012.
Other expense and income items included a $2.0 million pre-tax charge related to the bankruptcy of a workers' compensation insurance carrier, which required the company to assume the obligation for existing workers' compensation claims and a $1.4 million pre-tax foreign currency exchange gain in the third quarter of 2013 as compared to a $2.0 million pre-tax foreign currency exchange gain in the third quarter of 2012.
Sales by Segment
U.S. sales in the third quarter of 2013 were $1.02 billion and reflected a planned decrease in OCTG revenues of $83.4 million from the third quarter of 2012 as well as lower sales across other product lines due to lower activity levels and lower spending of some of our key customers. These declines were partially offset by the acquisitions of PSS and Flow Control.
Canadian sales in the third quarter of 2013 were $162.1 million, down 12.7% from the same quarter in 2012 primarily due to a decline in project sales in the oil sands region of northern Alberta as well as a weaker Canadian dollar relative to the U.S. dollar.
International sales in the third quarter of 2013 were $136.6 million and decreased 11.1% from the same period in 2012 due to weaker demand, particularly in parts of Australia that have experienced reduced customer spending in the mining and oil and gas sectors. In addition, nearly half of the decline can be attributed to a weaker Australian dollar relative to the U.S. dollar.
Sales by Sector
Upstream sales in the third quarter of 2013 declined 10% from the third quarter of 2012 to $588.1 million, or 45% of sales. The change in upstream sales is primarily attributable to the planned reduction in OCTG revenue and weak sales in Canada, partially offset by the acquisitions of PSS and Flow Control.
Midstream sales in the third quarter of 2013 decreased 6.6% from the third quarter of 2012 to $377.3 million, or 29% of sales. Spending from the company's transmission customers declined but was partially offset by an increase in spending from the company's gas utility customers.
Downstream sales in the third quarter of 2013 decreased 11.5% from the third quarter of 2012 to $348.3 million, or 26% of sales due to weaker market conditions, primarily in the international segment.
Balance sheet
Outstanding debt was $1.04 billion at September 30, 2013, a reduction of $40.1 million during the quarter. Cash provided by operations was $59.5 million during the third quarter of 2013 and $241.4 million for the nine months ended September 30, 2013.
