MRC Global & NOW Inc. Facing Texas-Sized Problems - Modern Distribution Management

MRC Global & NOW Inc. Facing Texas-Sized Problems

Oil & gas slump decimates Houston distributors' 4Q revenues.
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Everything is bigger in Texas, as the old saying goes, except for the revenues and earnings of some industrial companies based in the Lone Star State. Those dwindled to the size of Rhode Island in the fourth quarter.

This week a pair of Houston, TX-based distributors – MRC Global Inc. and NOW Inc. – announced 2015 and 4Q double-digit sales declines as well as losses in the millions. The culprit was a common one: "Continued challenges in oil and gas end markets … reduced customer spending across all geographies and all sectors," MRC Global CFO James Braun said on this week's earnings call.

MRC's sales fell 23.7 percent in 2015 compared to 2014, and by 36 percent in fourth quarter compared to the same period the previous year. The company reported losses of $344.8 million for the year and $398.8 million for the quarter.

And NOW Inc. – with more than 80 percent of its "revenues tied to the upstream and midstream markets," according to President and CEO Robert Workman – suffered a 26.7 percent sales decline in 2015 compared to 2014 and a 36 percent sales decline in 4Q compared to the same quarter a year ago. The company's losses were $502 million for 2015 and $249 million for 4Q.

Texas-based manufacturers and other multinational giants with exposure to oil & gas also took a hit in 2015 and the fourth quarter, including National Oilwell Varco Inc., Flowserve Corp. and Fluor Corp.

As companies with oil & gas exposure navigate the challenging landscape in 2016, look for losses to continue and divestitures to mount – as was the case when MRC sold its U.S. OCTG (oil country tubular goods) business this month for $48 million.

Companies are refocusing on their core businesses and trying to cut costs in response to the collapse of oil & gas. MRC, for example, closed or consolidated 17 branches in the fourth quarter and 36 branches globally in 2015.

"No doubt we are in the midst of one of the most challenging two-year cycles in oil and gas history," said MRC President and CEO Andrew Lane. "However, we are well-positioned to succeed regardless of how the market develops. We continue to stay the course by executing against our strategy, staying focused on areas of the business we can control."

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