Mullen Group Ltd.’s (TSX: MTL) recently reported second-quarter results signal a strengthening Canadian economy as well as a strengthening/recovering oil and gas industry.
By delving a little deeper into the results we have these key takeaways:
In the second quarter of 2017, the company reported a 10.8% increase in total revenue, with the oilfield services segment (33% of revenue) increasing 14.2%, and the trucking/logistics segment increasing 8.2%.
This is the second consecutive quarter of year-over-year revenue growth at Mullen in both the oilfield services segment and the trucking segment. In the first quarter of 2017, oilfield services revenue (36.7% of revenue) increased 4.8%, trucking revenue increased 4%, and total revenue increased 4.9%.
When we compare these numbers to the fourth quarter of 2016, it highlights the shift that the company has made and the improvement it is seeing. In the fourth quarter of 2016, oilfield services revenue declined 23% and accounted for 32.7% of revenue, and overall revenue declined 10.4%.
In the trucking and logistics segment, management has reported improving supply/demand fundamentals as the economy has improved. Pricing pressure has abated and, in fact, there are signs of upward pricing moves. Margins should improve going forward as acquisitions are now fully integrated.
In the oilfield services segment, drilling activity is up and will be up in 2017 versus 2016. Capital investment is increasing, and pricing has improved pretty much across the board, as the labour market has tightened and there is more discipline in general in the industry.
The one caveat is that there has not been a recovery in big capital projects, such as oil sands, and as Suncor Energy Inc.’s (TSX: SU)(NYSE: SU) $15.1 billion Fort Hills project and the $8 billion Northwest upgrader project are completed, Mullen is left without a major higher-margin, capital-intensive project.
All in all, though, this was a good-news quarter, and we can expect the second half of the year to be better than the first half.
The company’s balance sheet continues to be in good shape, and this gives Mullen flexibility and options, both of which are key. The cash and cash equivalents balance as at the end of June 2017 was over $250 million, and, as per the usual, management has plans to use this cash either to fund an acquisition that will generate shareholder value or, if an opportunity such as this fails to present itself, to reduce debt.
In closing, the future right now still lacks visibility, but there are bullish early signs of improving demand and this, coupled with the fact that Mullen has cut costs, increased margins, and is in the much-coveted position of being well positioned to be able to make attractive acquisitions, leaves me to conclude that this high-quality company is one that investors would do well adding.
