MRC Global recently announced its second-quarter 2016 results. The company's sales were $746 million for the second quarter of 2016, which were 38% lower than the second quarter of 2015 and 5% lower than the first quarter of 2016. As compared to last year, reduced customer activity across all segments and sectors drove the decline as a result of lower oil and natural gas prices.
Net loss attributable to common stockholders for the second quarter of 2016 was $(23) million or $(0.24) per diluted share, compared to net income attributable to common stockholders of $15 million or $0.15 per diluted share for the second quarter of 2015. The second quarter 2016 and 2015 results include severance and restructuring after-tax charges of $3 million ($0.03 per diluted share) and $6 million ($0.06 per diluted share), respectively.
Andrew R. Lane, MRC Global's president and chief executive officer stated” "Revenue was in line with our expectations this quarter. Looking forward, we do not expect a significant change in activity until customers increase capital spending. In the second quarter, the business generated $90 million in cash from operations for a total of $148 million in cash from operations generated so far this year.
“We also made progress under our stock repurchase program, buying $33 million in stock during the second quarter, bringing us to a total of $83 million of shares bought back since we announced the authorization in November 2015. We remain focused on executing our strategy to retain and win customers, strengthen the balance sheet, manage operating costs and optimize working capital. MRC Global is well-positioned regardless of market conditions."
MRC Global's second quarter 2016 gross profit was $125 million, or 16.8% of sales, a decrease from second quarter 2015 gross profit of $206 million, or 17.2% of sales. Gross profit for the second quarter 2016 and 2015 reflects a benefit of $1 million and $15 million, respectively, in cost of sales relating to the use of the last-in, first out (LIFO) method of inventory cost accounting.
Selling, general and administrative (SG&A) expenses were $135 million, or 18.1% of sales, for the second quarter of 2016 compared to $159 million, or 13.3% of sales, for the same period of 2015. SG&A expenses for the second quarter of 2016 and 2015 include $4 million and $7 million of severance and restructuring charges, respectively.
Adjusted EBITDA was $15 million in the second quarter of 2016 compared to $63 million for the same period in 2015.
The effective tax rate in the second quarter of 2016 was 11% as a result of a lower-than-expected effective tax rate for the full year of 22% due to lower than previously forecasted pre-tax income across all segments and a change in the geographic mix of pre-tax income and losses. The change in the expected tax rate had a negative impact of $0.06 per diluted share in the second quarter of 2016.
Sales by segment
U.S. sales in the second quarter of 2016 were $551 million, down $405 million or 42% from the same quarter in 2015. The decrease reflects a $196 million or 66% decrease in the upstream sector (which includes a $78 million impact from the sale of our U.S. oil country tubular goods (OCTG) product line), a $129 million or 32%, decrease in the midstream sector and an $80 million or 31% decrease in the downstream sector.
Canadian sales in the second quarter of 2016 were $54 million, down $24 million or 31% from the same quarter in 2015. About $3 million of the total decline was a result of a weaker Canadian dollar relative to the U.S. dollar.
International sales in the second quarter of 2016 were $141 million, down $23 million or 14% from the same period in 2015. The decrease was due to the combined impact of lower project activity and deferral of maintenance, repairs and operations expenditures particularly in Norwayand, Australia. The impact of the decline in the foreign currencies in areas where we operate account for $4 million of the total revenue decline.
Sales by sector
Upstream sales in the second quarter of 2016 decreased 51% from the second quarter of 2015 to $211 million or 28% of total sales. The decline in upstream sales was across all segments and was a result of reduced customer activity. U.S. upstream sales declined 40% in the second quarter of 2016, excluding OCTG revenue, from the second quarter of 2015 as compared to a 53% decline in the average U.S. rig count over the same period. International upstream sales declined 13% in the second quarter of 2016 from the second quarter of 2015.
Midstream sales in the second quarter of 2016 decreased 30% from the second quarter of 2015 to $292 million or 39% of total sales. Sales to transmission customers were down 44% and sales to gas utility customers were down by 15% over the same quarter in 2015.
Downstream sales in the second quarter of 2016 decreased 30% from the second quarter of 2015 to $243 million or 33% of total sales. The downstream sector declined by 31% in the U.S., and 15% in international due primarily to lower project activity.
During the second quarter of 2016 the company generated $90 million of cash from operations and grew cash to $167 million at June 30, 2016, from $121 million at the end of the first quarter 2016. Debt, net of cash, was $349 million at June 30, 2016, compared to $450 million at December 31, 2015.
Share repurchase program update
In November 2015, the board of directors authorized a share repurchase program for common stock of up to $100 million. During the second quarter of 2016, the company repurchased $33 million of its common stock at an average price of $13.82 per share. In total, the company has repurchased $83 million of its common stock. The outstanding share count as of June 30, 2016 is $96.4 million.
Shares may be repurchased at management's discretion in the open market depending on market conditions and other factors.
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