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MRC Global MRC has failed to impress investors with its recent operational performance on account of softness in the Gas Utilities and Production & Transmission Infrastructure (PTI) sectors and rising operating costs. These factors are likely to impede MRC Global’s earnings in the quarters ahead.

Let’s discuss the factors, which are likely to continue taking a toll on this current Zacks Rank #4 (Sell) company.

Business Weakness: Decreased customer spending for modernization and replacement activity, and delayed customer projects are affecting the Gas Utilities and PTI sectors. Revenues from the company’s Gas Utilities and PTI sectors decreased 21% and 15% year over year, respectively, in the fourth quarter of 2023. MRC Global expects overall revenues in the range of flat to decline in low-to-mid single digits in 2024.

Steep Costs: MRC Global has been dealing with the adverse impacts of the high cost of sales (due to raw material cost inflation). In 2023, its cost of sales remained high at $2.72 billion. Selling, general and administrative expenses climbed 7% to $503 million in the same period due to higher employee-related costs and associated benefit costs. In 2022, the company’s cost of sales recorded a year-over-year increase of 22.4%. Selling, general and administrative expenses rose 14.6% year over year in 2022. Escalating costs pose a threat to the company’s bottom line.

Supply-Chain Constraints: Despite the relaxed COVID restrictions in China, recent geopolitical conflicts may potentially further constrain the global supply chain and impact the availability of parts, particularly for valves. Labor constraints, arising from the post-pandemic improvement of employment rates and increased competition among companies to attract and retain employees, are also worrisome in the quarters ahead.

Southbound Estimate Revisions: In the past 60 days, the Zacks Consensus Estimate for MRC’s 2024 earnings has been revised 14.2% downward.

Stocks to Consider

Some better-ranked companies from the Industrial Products sector are discussed below:

Applied Industrial Technologies, Inc. AIT presently sports a Zacks Rank #1 (Strong Buy). It has a trailing four-quarter average earnings surprise of 10.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for AIT’s fiscal 2024 earnings has increased 2.5% in the past 60 days. The stock has gained 38.5% in the past year.

Caterpillar Inc. CAT presently carries a Zacks Rank #2 (Buy) and a trailing four-quarter earnings surprise of 19.7%, on average.

CAT’s earnings estimates have increased 0.7% for 2024 in the past 60 days. Shares of Caterpillar have risen 61.5% in the past year.

A. O. Smith Corporation AOS presently carries a Zacks Rank of 2. It has a trailing four-quarter average earnings surprise of 12%.

The Zacks Consensus Estimate for AOS’ 2024 earnings increased 0.5% in the past 60 days. Shares of A. O. Smith have soared 26% in the past year.

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