DNOW Q2 Deep Dive: Midstream Strength, MRC Global Deal, and Shifting End Markets

Energy and industrial distributor DistributionNOW (NYSE:DNOW) announced better-than-expected revenue in Q2 CY2025, but sales were flat year on year at $628 million. Its non-GAAP profit of $0.27 per share was 26.6% above analysts’ consensus estimates.

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StockStory’s Take

DistributionNOW’s second quarter results met revenue expectations but were met with a negative market reaction, as investors appeared cautious despite non-GAAP profit outperformance. Management attributed the quarter’s performance to robust midstream project activity and growing contributions from water management solutions, with CEO David Cherechinsky stating, “U.S. activity drove strong sequential revenue gains, up 11%, driven by midstream strength with additional contribution from steady demand for our water management solutions.” The team also cited disciplined cost management and steady cash generation as contributors to stable margins in a more price-sensitive environment.

Looking ahead, DistributionNOW’s guidance is shaped by its planned merger with MRC Global, ongoing sector headwinds, and efforts to diversify across industrial and energy-adjacent markets. Management emphasized the importance of integration planning for the merger, targeting $70 million in annual cost synergies within three years of closing. Cherechinsky highlighted the company’s intent to “focus on growth and the promise of what this combination can mean,” while also noting that customer budget exhaustion and tariff impacts will be key variables in the second half of the year.

Key Insights from Management’s Remarks

Management highlighted midstream expansion, merger progress with MRC Global, and diversification into new industrial markets as major themes.

• Midstream revenue surge: DistributionNOW’s midstream projects contributed 27% of total revenue, more than doubling their share since late 2023. This shift reflects a deliberate effort to reduce reliance on upstream oil and gas activity, with management citing larger project wins and increased demand for centralized infrastructure.
• MRC Global merger integration: The pending merger with MRC Global is a central strategic focus. Leadership has begun joint integration efforts, targeting $70 million in annual cost synergies, mainly through operational and supply chain efficiencies, and expects to enhance offerings in areas like electrification, artificial intelligence infrastructure, and LNG.
• Water management and process solutions: FlexFlow water management solutions continued to see strong demand, particularly in leased water disposal and transfer assets, supported by industry projections for increased produced water volumes and recycling handled by midstream operators.
• International and Canadian headwinds: Canadian revenue declined due to seasonal breakup and political uncertainty, while international revenue fell sequentially after a large nonrecurring project, though management notes growing opportunities in carbon capture, hydrogen, and Asia-Pacific markets following the Natron International acquisition.
• Tariffs and inventory strategy: Management reported that tariffs have modestly raised product costs but have not significantly impacted pricing power, given competitive market dynamics. The company is strategically investing in inventory to ensure supply chain resilience as tariff policies evolve.

Drivers of Future Performance

DistributionNOW’s outlook is anchored in the MRC Global merger, end-market diversification, and managing sector headwinds such as tariffs and customer spending patterns.

• Merger execution and synergy capture: Management believes successful integration with MRC Global will be key to expanding into new markets and achieving targeted cost synergies, with particular focus on cross-selling, unified supply chain management, and leveraging a broader customer base in industrial, electrification, and utility segments.
• End-market diversification: The company expects less dependence on upstream oil and gas cycles as it increases exposure to midstream, gas utilities, and sectors like data centers and LNG. Leadership sees modernization of gas utility infrastructure and AI-driven demand for data center construction as promising growth drivers.
• Tariff and budget exhaustion risks: Management acknowledged that customer budget exhaustion, especially in Q4, as well as ongoing tariff uncertainty and political factors in Canada, could temper growth. The company’s inventory strategy and cautious approach to guidance reflect these risks.

Catalysts in Upcoming Quarters

Over the coming quarters, we will be closely watching (1) the progression of the MRC Global merger, including regulatory milestones and initial synergy realization; (2) shifts in end-market mix, particularly the ramp-up of midstream, utility, and industrial revenues; and (3) management’s ability to navigate tariff and supply chain challenges. The pace of customer demand recovery and execution on bolt-on acquisitions will also be important indicators.

DistributionNOW currently trades at $14.37, down from $15.22 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free).

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