MRC Global (MRC)

Fluid and gas handling company MRC (NYSE:MRC) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 11.7% year on year to $712 million. Its GAAP loss of $0.26 per share was significantly below analysts’ consensus estimates.

Company Overview

Producing bomb casings and tracks for vehicles during WWII, MRC (NYSE:MRC) offers pipes, valves, and fitting products for various industries.

Focusing on narrow product categories that can lead to economies of scale, infrastructure distributors sell essential goods that often enjoy more predictable revenue streams. For example, the ongoing inspection, maintenance, and replacement of pipes and water pumps are critical to a functioning society, rendering them non-discretionary. Lately, innovation to address trends like water conservation has driven incremental sales. But like the broader industrials sector, infrastructure distributors are also at the whim of economic cycles as external factors like interest rates can greatly impact commercial and residential construction projects that drive demand for infrastructure products.

Competitors offering similar products include Barnes (NYSE:B), Flowserve (NYSE:FLS), and Eaton (NYSE:ETN).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. MRC Global’s demand was weak over the last five years as its sales fell at a 2.9% annual rate. This wasn’t a great result and is a sign of poor business quality.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. MRC Global’s recent performance shows its demand remained suppressed as its revenue has declined by 7.4% annually over the last two years.

MRC Global also breaks out the revenue for its most important segments, Valves and Fittings, which are 38.9% and 22.8% of revenue. Over the last two years, MRC Global’s Valves revenue (fluid control) averaged 2.6% year-on-year declines while its Fittings revenue (pipe connectors) averaged 4.2% declines.

This quarter, MRC Global reported a rather uninspiring 11.7% year-on-year revenue decline to $712 million of revenue, in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 6.1% over the next 12 months. While this projection indicates its newer products and services will fuel better top-line performance, it is still below average for the sector.

At StockStory, we prefer high gross margin businesses because they indicate the company has pricing power or differentiated products, giving it a chance to generate higher operating profits.

MRC Global has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 18.3% gross margin over the last five years. Said differently, MRC Global had to pay a chunky $81.69 to its suppliers for every $100 in revenue.

This quarter, MRC Global’s gross profit margin was 19.9%, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

MRC Global was profitable over the last five years but held back by its large cost base. Its average operating margin of 1.4% was weak for an industrials business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, MRC Global’s operating margin rose by 15.5 percentage points over the last five years.

In Q1, MRC Global generated an operating profit margin of 2.5%, down 2.2 percentage points year on year. Since MRC Global’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

MRC Global’s earnings losses deepened over the last five years as its EPS dropped 11.1% annually. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, MRC Global’s low margin of safety could leave its stock price susceptible to large downswings.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

Sadly for MRC Global, its EPS declined by more than its revenue over the last two years, dropping 65.1%. This tells us the company struggled to adjust to shrinking demand.

Diving into the nuances of MRC Global’s earnings can give us a better understanding of its performance. MRC Global’s operating margin has declined by 3.9 percentage points over the last two years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q1, MRC Global reported EPS at negative $0.26, down from $0.08 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street is optimistic. Analysts forecast MRC Global’s full-year EPS of negative $0.38 will flip to positive $1.18.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

MRC Global has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.3%, subpar for an industrials business.

Taking a step back, we can see that MRC Global’s margin dropped by 2.6 percentage points during that time. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s becoming a more capital-intensive business.

MRC Global broke even from a free cash flow perspective in Q1. The company’s cash profitability regressed as it was 3.3 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

MRC Global historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 0.9%, lower than the typical cost of capital (how much it costs to raise money) for industrials companies.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. MRC Global’s ROIC has increased significantly over the last few years. This is a good sign, and we hope the company can continue improving.

MRC Global reported $63 million of cash and $556 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $181 million of EBITDA over the last 12 months, we view MRC Global’s 2.7× net-debt-to-EBITDA ratio as safe. We also see its $9 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly MRC Global blew past analysts’ EPS expectations this quarter. We were also happy its adjusted operating income outperformed Wall Street’s estimates. On the other hand, its Valves revenue missed. Overall, we think this was a decent quarter with some key metrics above expectations. The stock remained flat at $12.31 immediately following the results.

Updated: May 22, 2025 at 11:08 PM EDT

Before investing in or passing on MRC Global, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

MRC Global falls short of our quality standards. First off, its revenue has declined over the last five years. And while its expanding operating margin shows the business has become more efficient, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its operating margins reveal poor profitability compared to other industrials companies.

MRC Global’s P/E ratio based on the next 12 months is 10.4x. While this valuation is fair, the upside isn’t great compared to the potential downside. There are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $15 on the company (compared to the current share price of $12.33).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.