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MRC Global Inc., the largest global distributor, based on sales, of pipe, valves and fittings and other infrastructure products and services to the energy industry, has announced full year and fourth quarter 2020 results.
The company's sales were $579 million for the fourth quarter of 2020, which was 1 percent lower than the third quarter of 2020 and 24 percent lower than the fourth quarter of 2019. Sequential sales were essentially flat as both the gas utilities and upstream production sectors experienced growth, offset by declines in the midstream pipeline and downstream and industrial sectors. The international segment also experienced growth on a sequential basis. As compared to the fourth quarter of 2019, the decline in sales was across all sectors and segments, with the exception of the gas utilities segment, which experienced significant growth.
Net loss attributable to common stockholders for the fourth quarter of 2020 was ($11) million, or ($0.13) per diluted share, as compared to a net loss of ($30) million, or ($0.37) per diluted share in the fourth quarter of 2019. Please refer to the reconciliation of adjusted net income (loss) (a non-GAAP measure) to net income (loss) (a GAAP measure) included in this release.
Andrew R. Lane, MRC Global's president and chief executive officer stated, "Overcoming enormous challenges in 2020, I am proud of our MRC Global team for staying focused and executing our strategy for long-term shareholder value. We exceeded all the targets we set for 2020 including generating $261 million of cash from operations and reducing our net debt by almost half to $264 million, with a leverage ratio of 2.7 times. We ended the year with $119 million in cash and our term loan does not mature until 2024. We set a new record for adjusted gross margins in 2020 achieving 19.7 percent for the year. We also reduced our normalized operating costs by $113 million in 2020, with a majority of these structural, positioning the company well for higher incremental margins going forward. I am also very happy that despite the challenges of the pandemic, we stayed focused on our employee safety and finished the year with the best recorded safety performance in our history. As the oil and gas market recovers, we are well-positioned with a great team, $551 million in liquidity and a lean cost structure that will allow us to take full advantage of the opportunities ahead.
"Next week, MRC Global celebrates a significant milestone, our 100-year anniversary, an achievement few can claim. It is just the beginning however, and we look forward to remaining the leading global PVF distributor to the oil and gas industry providing world-class supply chain solutions for our customers, creating new opportunities for our employees and generating superior returns for our shareholders." Lane added.
MRC Global's fourth quarter 2020 gross profit was $90 million, or 15.5 percent of sales, as compared to gross profit of $131 million, or 17.1 percent of sales, in the fourth quarter of 2019. Gross profit for the fourth quarter of 2020 and 2019 each reflect expense of $1 million in cost of sales relating to the use of the last-in, first out (LIFO) method of inventory cost accounting. Gross profit for the fourth quarter of 2020 and 2019 was also negatively impacted by $12 million and $5 million of pre-tax charges related to the non-cash write-off of excess and obsolete inventory, respectively. Adjusted gross profit, which excludes these items as well as others, was 19.7 percent in both the fourth quarter of 2020 and 2019. Please refer to the reconciliation of adjusted gross profit (a non-GAAP measure) to gross profit (a GAAP measure) included in this release.
Selling, general and administrative (SG&A) expenses were $97 million, or 16.8 percent of sales, for the fourth quarter of 2020 compared to $141 million, or 18.4 percent of sales, for the same period of 2019. SG&A expenses for the fourth quarter of 2020 and 2019 include $2 million and $4 million of pre-tax severance and restructuring charges. SG&A expenses for the fourth quarter of 2020 also include $1 million of pre-tax sub-lease income.
For the three months ended December 31, 2020, the income tax benefit was ($2) million on a ($7) million pre-tax loss resulting in an effective tax rate of 29 percent. 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. For the three months ended Dec. 31, 2019, the income tax expense was $5 million on a ($19) million pre-tax loss. This was due primarily to losses incurred in foreign jurisdictions with no corresponding tax benefit and additional taxes related to changes in tax regulations.
Adjusted EBITDA was $22 million in the fourth quarter of 2020 compared to $23 million for the same period in 2019. Please refer to the reconciliation of non-GAAP measures (adjusted EBITDA) to GAAP measures (net income) in this release.
Sales by Segment
U.S. sales in the fourth quarter of 2020 were $448 million, down $160 million, or 26 percent, from the same quarter in 2019. Gas utilities' sector sales were up $38 million or 21 percent as many customers increased spending in the fourth quarter, which is uncommon compared to historical trends, due to a budget catch-up from lower spending earlier in the year related to pandemic restrictions. Downstream and industrial sector sales declined by $68 million, or 36 percent, as critical turnarounds were completed but overall spending was reduced in response to lower demand created by the pandemic. Upstream production sector sales declined $77 million, or 55 percent, as a result of reduced spending from the pandemic and a 57 percent reduction in well completions. Midstream pipeline sector sales declined $53 million, or 51 percent, primarily due to less customer spending as projects were canceled or delayed associated with reduced demand for infrastructure as production declined.
Canadian sales in the fourth quarter of 2020 were $23 million, down $20 million, or 47 percent, from the same quarter in 2019 driven by the upstream sector, which was adversely affected by the pandemic and associated reduced demand.
International sales in the fourth quarter of 2020 were $108 million, down $7 million, or 6 percent, from the same period in 2019 driven primarily by weaker demand in the upstream sector from the impact of the pandemic particularly in the Middle East and Norway. Stronger foreign currencies relative to the U.S. dollar favorably impacted sales by $5 million.
Sales by Sector
Gas utilities sales in the fourth quarter of 2020 were $217 million, or 37 percent of total sales, up $37 million, or 21 percent, from the fourth quarter of 2019 due primarily to the U.S. segment, as described above.
Downstream and industrial sales in the fourth quarter of 2020 were $174 million, or 30 percent of total sales, down $70 million, or 29 percent, from the fourth quarter of 2019 due primarily to the U.S. segment, as described above.
Upstream production sales in the fourth quarter of 2020 were $126 million, or 22 percent of total sales, down $98 million, or 44 percent, from the fourth quarter of 2019. The decrease in upstream sales was across all geographic segments, as described above.
Midstream pipeline sales in the fourth quarter of 2020 were $62 million, or 11 percent of total sales, down $56 million, or 47 percent, from the fourth quarter of 2019 due primarily to the U.S. segment, as described above.
Balance Sheet and Cash Flow
Cash balances were $119 million at December 31, 2020. Debt, net of cash, was $264 million and excess availability under the company's asset-based lending facility was $432 million as of December 31, 2020. Cash provided by operations was $83 million in the fourth quarter of 2020 resulting in $261 million of cash provided by operations in 2020. Free cash flow (cash provided by operations less capital expenditures less preferred stock dividends) was $226 million in 2020. The company believes MRC Global's liquidity position of $551 million is sufficient to support the business and capital needs of the company.
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 our customers and reduced demand for the company's products and services. Although we have seen a modest improvement in oil demand, uncertainty exists as to when a more significant recovery will occur.
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's office staff initially worked from home as the pandemic began but has returned to the office in varying degrees depending on the stage of the pandemic at each locality.
As of Feb. 2, 2021, the company had 10 active COVID-19 illnesses reported, which is 0.4 percent of its global workforce. 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, given the company's inventory position and the reduced demand, the company has fulfilled orders with little disruption.
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