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MRC Global Inc., the largest global distributor, based on sales, of pipe, valves and fittings and related infrastructure products and services to the energy industry, has announced second quarter 2020 results.
The company's sales were $602 million for the second quarter of 2020, which was 24 percent lower than the first quarter of 2020 and 39 percent lower than the second quarter of 2019. The sequential decline was across all segments and sectors except gas utilities, which was up $3 million. As compared to the second quarter of 2019, the decrease was across all sectors and segments as the impact of the COVID-19 pandemic and lower commodity prices significantly reduced customer spending.
Net loss attributable to common stockholders for the second quarter of 2020 was $287 million, or $3.50 per diluted share, as compared the second quarter of 2019 net income of $18 million, or $0.21 per diluted share. The second quarter of 2020 results include pre-tax charges for the impairment of goodwill and intangible assets, severance and restructuring and other items of $301 million and after-tax charges of $284 million or $3.46 per diluted share. Adjusted net loss attributable to common stockholders for the second quarter of 2020 was $8 million, or $0.10 per diluted share, compared to net income of $17 million, or $0.20 per diluted share for the second quarter of 2019.
Andrew R. Lane, MRC Global's president and CEO, said, "Due to the incredible demand destruction brought on by the coronavirus pandemic, the second quarter was our most challenging to date, but I am very pleased with the rapid and proactive response of our employees and management team, who remain fully committed to our long-term strategy to enhance shareholder value. We are keenly focused on the levers within our control. As a result, we have reduced operating costs significantly in the second quarter, exceeding our initial estimates and achieving a new quarterly SG&A run rate of $104 million, excluding severance and restructuring charges. Our cost savings programs are expected to achieve over $100 million of adjusted cost savings in 2020 as compared to 2019 and we will continue to adjust the cost structure as conditions dictate. We generated $84 million of cash from operations in the first half of the year, and we continue to target $200 million for the full year. Debt reduction remains a top priority. We have reduced net debt by $64 million in the first half of the year and reduced our ABL balance to $89 million.
"We continue to invest in e-commerce opportunities and have recently set a new milestone to transition thousands of smaller transactional customers to our e-commerce platform, which can reduce our cost to serve with targeted $5 million to $10 million in annual savings by 2022. We are the global leader in supplying PVF to the energy industry. We remain focused on delivering shareholder value by serving our customers, generating cash, strengthening our balance sheet, managing operating costs and optimizing our working capital," Lane added.
MRC Global's second quarter 2020 gross profit was $79 million, or 13.1 percent of sales as compared to the second quarter of 2019 gross profit of $174 million, or 17.7 percent of sales. Gross profit for the second quarter of 2020 and 2019 reflects income of $6 million and $1 million, respectively, in cost of sales relating to the use of the last-in, first out (LIFO) method of inventory cost accounting. Gross profit for the second quarter of 2020 also includes $34 million of pre-tax inventory-related charges. Adjusted gross profit, which excludes both the impact of LIFO and inventory-related charges for the second quarter of 2020 was $118 million or 19.6 percent of revenue, a 30-basis point improvement over the second quarter of 2019.
Selling, general and administrative (SG&A) expenses were $126 million, or 20.9 percent of sales, for the second quarter of 2020 compared to $133 million, or 13.5 percent of sales, for the same period of 2019. SG&A includes severance and restructuring charges and facilities closure charges of $22 million in the second quarter of 2020.
Other, net includes $3 million of non-cash charges for the write-down of assets related to facility closures.
The income tax benefit was $17 million for the three months ended June 30, 2020, as compared to $8 million of expense for the three months ended June 30, 2019. The effective tax rates were 6 percent and 25 percent for the three months ended June 30, 2020 and 2019, respectively. The company's rates generally differ from the U.S. federal statutory rate of 21 percent as a result of state income taxes and differing foreign income tax rates. The effective tax rate for three months ended June 30, 2020, was lower primarily due to a non-tax-deductible goodwill impairment charge during the quarter.
Sales by Segment
U.S. sales in the second quarter of 2020 were $474 million, down $332 million, or 41 percent, from the same quarter in 2019. Upstream production sales decreased by $122 million, or 65 percent primarily due to reduced spending from the company's customers and a 62 percent reduction in well completions. Downstream and industrial sales declined $87 million, or 41 percent, as many customers delayed maintenance spending and idled facilities due to lower demand as well as non-recurring projects. Midstream pipeline sales declined $79 million, or 49 percent due to reduced customer spending and the timing of customer projects. Gas utilities' sales were down $44 million, or 18 percent, primarily due to the impact from the pandemic restrictions as customers paused spending.
Canadian sales in the second quarter of 2020 were $28 million, down $30 million, or 52 percent, from the same quarter in 2019 driven primarily by the upstream production sector, which was adversely affected by the pandemic and associated reduced demand as well as the midstream pipeline sector, which was lower due to non-recurring projects.
International sales in the second quarter of 2020 were $100 million, down $20 million, or 17 percent, from the same period in 2019 driven primarily by reduced spending in the downstream and industrials sector followed by the upstream sector due to the completion of a multi-year project in 2019. Weaker foreign currencies relative to the U.S. dollar unfavorably impacted sales by $6 million or 5 percent.
All sales were adversely impacted by the COVID-19 pandemic and the related mitigation measures, which negatively affected demand for energy products.
Sales by Sector
Upstream production sales in the second quarter of 2020 were $134 million, or 22 percent of total sales, a decline of $150 million or 53 percent from the second quarter of 2019. The decrease in upstream production sales was across all segments led by the U.S. segment.
Midstream pipeline sales in the second quarter of 2020 were $87 million, or 15 percent of total sales, a reduction of $87 million or 50 percent from the first quarter of 2019 driven by the U.S. segment.
Gas utilities sales in the second quarter of 2020 were $205 million, or 34 percent of total sales, lower by 17 percent from the second quarter of 2019.
Downstream and industrial sales in the second quarter of 2020 were $176 million, or 29 percent, of total sales, a decrease of $103 million, or 37 percent, from the second quarter of 2019 driven by the U.S. segment.
Cash balances were $19 million and debt, net of cash, was $455 million at June 30, 2020. Cash provided by operations was $47 million in the second quarter of 2020 and $84 million for the six months ended June 30, 2020. Excess availability under the company's asset-based lending facility was $411 million and available liquidity was $430 million.
COVID-19 Pandemic Impact
The COVID-19 pandemic and related mitigation measures have created significant volatility and uncertainty in the oil and gas industry. Oil demand has significantly deteriorated as a result. The unparalleled demand destruction has resulted in lower spending by customers and reduced demand for the company's products and services. There is significant uncertainty as to the duration of this disruption.
As a critical supplier to the global energy infrastructure and an essential business, the company has remained operational with no closures to any facilities. The company currently has 27 COVID-19 illnesses reported. MRC Global has implemented various safety measures for employees working in the company's facilities and implemented remote working for those whose jobs permit it. MRC Global is committed to a safe working environment for all employees and is constantly monitoring its response in the locations where the company operates.
From a supply chain perspective, the effects have moved around the globe as the virus has spread. Given the company's inventory position and the reduced demand, the company has fulfilled orders with little disruption. However, if shutdowns are re-established in its suppliers' locations, order fulfillment risk could increase.
The company will hold a conference call to discuss its second quarter 2020 results at 10 a.m ET on July 29, 2020. To participate in the call, dial 412–902-0003 and ask for the MRC Global conference call at least 10 minutes prior to the start time. To access the conference call, live over the Internet, log onto the web at www.mrcglobal.com and go to the "Investor Relations" page of the company's website at least 15 minutes early to register, download and install any necessary audio software. For those who cannot listen to the live call, a replay will be available through Aug.12, 2020, and can be accessed by dialing 201-612-7415 and using pass code 13704697#. Also, an archive of the webcast will be available shortly after the call at www.mrcglobal.com for 90 days.
Refer to the reconciliation of non-GAAP measures (adjusted gross profit, adjusted EBITDA) to GAAP measures (gross profit, net income) on the company's website.
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