MRC Global Inc., a global distributor of pipe, valves and fittings and related products and services to the energy industry, announced first quarter 2019 results.
The company's sales were $970 million for the first quarter of 2019, which was 4 percent lower than the fourth quarter of 2018 and 4 percent lower than the first quarter of 2018. The sequential decline was driven primarily by the International and Canadian segments including the concluding of a project in Kazakhstan. As compared to the first quarter of 2018, the decrease was primarily due to non-recurring midstream project work.
Net income attributable to common stockholders for the first quarter of 2019 was $12 million, or $0.14 per diluted share, as compared to the first quarter of 2018 of $12 million, or $0.13 per diluted share.
Andrew R. Lane, MRC Global's president and chief executive officer stated, "The first quarter 2019 results were in line with our expectations. Customer activity slowed in December of last year, which carried over into 2019 resulting in a slow start to the year before improving in March. With this improving market dynamic and our market share gains, we achieved solid adjusted EBITDA of $56 million, or 5.8 percent, of sales in the first quarter of 2019.
"We continued to return cash to shareholders as part of our capital allocation strategy by repurchasing $25 million of our stock in the first quarter of 2019 and an additional $25 million in April. This leaves $25 million remaining for our existing share repurchase program," Lane added.
MRC Global's first quarter 2019 gross profit was $174 million, or 17.9 percent of sales, an increase from the first quarter of 2018 gross profit of $169 million, or 16.7 percent of sales. Gross profit for the first quarter of 2019 and 2018 reflects an expense of $0 million and $7 million, respectively, in cost of sales relating to the use of the last-in, first out (LIFO) method of inventory cost accounting. The gross margin percentage in the first quarter of 2019 was negatively impacted by 20 basis points for two unique, lower margin midstream project orders in North America.
Selling, general and administrative expenses were $139 million, or 14.3 percent of sales, for the first quarter of 2019 compared to $138 million, or 13.7 percent of sales, for the same period of 2018.
Please refer to the reconciliation of non-GAAP measures (adjusted gross profit and adjusted EBITDA) to GAAP measures (gross profit, net income) in this release.
Sales by Segment
U.S. sales in the first quarter of 2019 were $779 million, down $27 million, or 3 percent, from the same quarter in 2018. Upstream increased by $28 million, or 16 percent primarily due to higher well completions in the Permian. Midstream declined $56 million, or 14 percent primarily due to non-recurring midstream project work that ended in 2018.
Canadian sales in the first quarter of 2019 were $68 million, down $10 million, or 13 percent, from the same quarter in 2018 driven by the upstream sector, which was adversely affected by government imposed production limits. A weaker Canadian dollar relative to the U.S. dollar unfavorably impacted sales by $4 million.
International sales in the first quarter of 2019 were $123 million, down $3 million, or 2 percent, from the same period in 2018. The $3 milliondecrease was due to the impact of weaker foreign currencies relative to the U.S. dollar, which unfavorably impacted sales by $9 millionand the concluding of an upstream project in Kazakhstan. Excluding the impact of currency and the project, International sales increased $18 million or 17 percent due to improving conditions in international markets.
Sales by Sector
Upstream sales in the first quarter of 2019 increased 3 percent over the first quarter of 2018 to $312 million, or 32 percent of total sales. The increase in upstream sales was driven by the U.S. segment partially offset by declines in Canada and International.
Midstream sales in the first quarter of 2019 were $361 million, or 37 percent of total sales, down $49 million or 12 percent from the first quarter of 2018. Sales to gas utility customers were up by 11 percent due to an increase in integrity and growth project spending for various customers, while sales to transmission and gathering customers were down 33 percent over the same quarter in 2018 primarily due to non-recurring project work that ended in 2018.
Downstream sales in the first quarter of 2019 decreased $1 million from the first quarter of 2018 to $297 million, or 31 percent of total sales.
Cash balances were $27 million at March 31, 2019. Debt, net of cash, was $719 million and excess availability under our asset-based lending facility was $382 million as of March 31, 2019. Cash used in operations was $40 million in the first quarter of 2019. MRC Global'sliquidity position of $409 million is sufficient to support the business and capital needs of the Company.
On January 1, 2019, we adopted a new accounting standard requiring the recognition of operating leases on the consolidated balance sheet. As of March 31, 2019, the total operating lease liability was $205 million, and the operating lease asset was $190 million.
Share Repurchase Program Update
In October 2018, the board of directors authorized a share repurchase program for common stock of up to $150 million. During the first quarter of 2019, the company purchased $25 million of its common stock at an average price of $14.24 per share. In April 2019, the company purchased an additional $25 million of its common stock at an average price of $18.24 per share, leaving $25 million available under the current authorization.
The shares may be repurchased at management's discretion in the open market. Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time without prior notice. The current program is scheduled to expire on Dec. 31, 2019.
Since 2015, the company has repurchased $350 million or 22.5 million shares at an average price of $15.58 per share. The outstanding share count as of April 26, 2019 was 83.1 million shares.
Updated 2019 Annual Guidance
The company is updating its 2019 annual guidance to reflect a slower increase in customer activity levels in the second quarter and more tempered expectations for the remainder of the year than previously expected. The company expects sales in the second quarter to be improved over the first quarter by 6 percent to 9 percent and expects growth in the second half of the year as compared to the first half of the year.