The company’s sales were $794 million for the first quarter of 2020, which was 4% higher than the fourth quarter of 2019 and 18% lower than the first quarter of 2019. The sequential increase was driven primarily by the U.S. gas utilities sector, which was up $21 million. As compared to the first quarter of 2019, the decrease was across all sectors and segments as the impact of lower commodity prices led to reduced customer spending.
Net income attributable to common stockholders for the first quarter of 2020 was $3 million, or $0.04 per diluted share, as compared to the first quarter of 2019 of $12 million, or $0.14 per diluted share.
Andrew R. Lane, MRC Global’s president and chief executive officer stated, “I am pleased with our first quarter results, which was a solid performance given the market challenges. Revenue was up sequentially, we generated $37 million of cash from operations, and we reduced net debt by $26 million. Customer spending has slowed considerably in April in response to the unfavorable commodity price environment and a significant decline in oil and gas global demand brought about by the COVID-19 pandemic. As a result, we are taking steps to further reduce our operating costs by $80 million and reduce inventory by $140 million or more compared to 2019.”
“Our counter cyclical cash flow business model and our available liquidity will allow us to withstand the current challenging market conditions and continue to focus on our long-term strategy to enhance shareholder value. We expect to generate over $200 million in cash flow from operations in 2020. At this level, our free cash flow would be approximately $160 million after accounting for the preferred stock dividend and capital expenditures, resulting in a free cash flow yield of nearly 50%, based on today’s stock price” he added.
MRC Global’s first quarter 2020 gross profit was $148 million, or 18.6% of sales as compared to the first quarter of 2019 gross profit of $174 million, or 17.9% of sales. Gross profit for the first quarter of 2020 and 2019 reflects income of $3 million and $0 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 $126 million, or 15.9% of sales, for the first quarter of 2020 compared to $139 million, or 14.3% of sales, for the same period of 2019. SG&A includes bad debt expense of $6 million in the first quarter of 2020.
COVID-19 pandemic impact
The COVID-19 global 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. We have had four confirmed illnesses reported, and all have recovered. MRC Global has also 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.
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, the longer the shutdowns continue, the greater the order fulfillment risk exists.
Sales by segment
U.S. sales in the first quarter of 2020 were $638 million, down $141 million, or 18%, from the same quarter in 2019. Upstream production sales decreased by $67 million, or 33% primarily due to increased capital discipline from our customers. Downstream and industrial sales declined $46 million, or 19% primarily due to non-recurring project work. Midstream pipeline sales declined $23 million, or 17% due to reduced customer spending and timing of customer projects.
Canadian sales in the first quarter of 2020 were $50 million, down $18 million, or 26%, from the same quarter in 2019 driven primarily by the upstream production sector, which was adversely affected by government imposed production limits as well as the gas utilities sector, which was lower due to a non-recurring pipe delivery.
International sales in the first quarter of 2020 were $106 million, down $17 million, or 14%, from the same period in 2019 driven primarily by the conclusion of an upstream production project in Kazakhstan. Weaker foreign currencies relative to the U.S. dollar unfavorably impacted sales by $6 million or 5%. All sales were negatively impacted by decreasing demand caused by the COVID-19 pandemic in March.
Sales by sector
Upstream production sales in the first quarter of 2020 were $222 million, or 28% of total sales, a decline of $90 million or 29% from the first quarter of 2019. The decrease in upstream production sales was across all segments led by the U.S. segment.
Midstream pipeline sales in the first quarter of 2020 were $119 million, or 15% of total sales, a reduction of $28 million or 19% from the first quarter of 2019 driven by the U.S. segment.
Gas utilities sales in the first quarter of 2020 were $202 million, or 25% of total sales, lower by 6% from the first quarter of 2019 due to lower activity levels for one customer and the timing of project deliveries.
Downstream and industrial sales in the first quarter of 2020 were $251 million, or 32% of total sales, a decrease of $46 million or 15% from the first quarter of 2019 driven by the U.S. segment.
This quarter, the company has expanded the disclosure of its end-market sector revenue to separately report the sectors midstream pipelines and gas utilities. Two years of historical revenue by quarter for these sectors is provided in this release.
Balance sheet
Cash balances were $28 million and debt, net of cash, was $493 million at March 31, 2020. Cash provided by operations was $37 million in the first quarter of 2020. Beginning in the second quarter, excess availability under the company’s asset-based lending facility is $437 million and available liquidity is $465 million.