MRC Global cuts debt by $606 million, will prioritize paying down debt

By Lisa Kerner

Charlotte, N.C., Aug. 4 – MRC Global Inc. reduced its debt by about $606 million in the second quarter, according to president and chief executive officer Andrew Lane, who said, “Our priority remains to pay down debt with free cash flow.”

The company funded the debt repayment by issuing 363,000 shares of class A convertible perpetual preferred stock for net proceeds of $355.5 million and using cash from operations.

“One of the benefits of the preferred stock offering was the ability to better position the company to take advantage of any potential opportunities that may arise, both organic and potential acquisitions,” Lane, who also is chairman, said during the company’s earnings call on Tuesday.

On June 30, MRC had net debt of $815 million and cash of about $33 million.

Cash provided by operations was $161.2 million during the second quarter and benefited from a planned reduction in working capital, according to the company’s earnings release. For the first six months of 2015, cash from operations totaled $277 million.

MRC is also focused on what can be controlled in what Lane called “a challenging environment.” The company reduced its headcount by 180 in the quarter, more than the anticipated 100. MRC has reduced its headcount by 680 from a peak headcount in 2014.

Additionally, the company closed eight branches in the quarter, six in the United States and two in Australia.

Looking ahead, Lane expects cash from operations to be between $400 million and $475 million for the full year. MRC’s debt balance at year’s end is expected to be in the range of $680 million to $750 million.

“We haven’t seen U.S. oil production come off meaningfully or demand grow enough to have much impact on oil prices for the foreseeable future,” said Lane.

He sees the oil and gas market continuing to “bounce along the bottom” through the end of 2015.

Financial highlights

MRC’s sales were down 20% year over year at about $1.2 billion. The company attributed the decline to reduced activity in the upstream sector as well as the strengthening of the dollar, which reduced reported sales by $40.8 million.

Net income for the quarter was $15 million, or $0.15 per diluted share. This compares with $39.3 million, or $0.38 per diluted share, for the second quarter of 2014.

Second-quarter gross profit was $205.9 million, or 17.2% of sales, down from a gross profit of $259.4 million, or 17.3% of sales, in the prior-year period.

Adjusted EBITDA was $63.2 million in the period, compared with $106.2 million for the same period in 2014.

MRC is a Houston-based distributor of pipe, valve, fittings and related products and services to the energy industry.

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