DNOW Q1 Deep Dive: Merger Integration and ERP Challenges Drive Mixed Results

Barchart·05/11/2026 11:02:24

Energy and industrial distributor DNOW (NYSE:DNOW) reported Q1 CY2026 results beating Wall Street’s revenue expectations, with sales up 97.5% year on year to $1.18 billion. Its non-GAAP profit of $0.01 per share was 83.3% below analysts’ consensus estimates.

Is now the time to buy DNOW? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

DNOW’s first quarter was defined by the integration of MRC Global and the operational challenges tied to large-scale enterprise resource planning (ERP) system migrations. While revenue rose sharply due to the full-quarter contribution from MRC Global, CEO David Cherechinsky highlighted that “temporary stabilization costs” and disruption from ERP issues in the U.S. business weighed heavily on profitability. Management acknowledged that these system-related costs are “transitory,” but their impact was significant enough to draw a cautious tone on near-term margins.

Looking ahead, DNOW’s focus is on stabilizing and optimizing its ERP platforms to unlock synergies and support a return to margin expansion. Cherechinsky stated, “We expect these temporary stabilization costs will continue to moderate as remediation progresses through the year,” and pointed to early commercial benefits from improved inventory visibility, especially in the Permian Basin. Management anticipates sequential improvements in EBITDA and cash flow as system integration progresses, while also noting that growth opportunities in midstream, gas utilities, and data centers are expected to drive new revenue streams.

Key Insights from Management’s Remarks

Management attributed the quarter’s revenue growth to the MRC Global merger, but margin pressure and elevated costs stemmed from ERP disruptions and integration work.

• ERP migration challenges: The integration of MRC Global’s U.S. locations into DNOW’s SAP platform created significant friction, leading to operational inefficiencies and temporary costs, especially in upstream and downstream markets. Cherechinsky emphasized that although “the system has stabilized to a level that allows us to conduct business,” optimization is ongoing, with full benefits expected later in the year.
• Inventory unlock in Permian: Migration of Permian Basin operations to the optimized SAP system enabled access to $40 million of previously less visible inventory, improving fulfillment speed and customer service. This was described by management as a “powerful commercial lever” to regain lost revenue and enhance margins.
• Segment-specific pressures: MRC Global U.S. revenues declined most in upstream and downstream due to ERP-related issues, while midstream and gas utilities fared better. Management noted, “About 3/4 of the decline was in upstream and downstream, while gas utilities and midstream were more resilient.”
• Synergy realization pace: DNOW increased its annualized synergy expectation to approximately $30 million for the year, pulling forward cost savings from facility consolidations and process integration. The company’s three-year synergy target remains at $70 million.
• Acquisition of Edge Controls: The purchase of Edge Controls, a regional automation and controls business, expands DNOW’s process solutions capabilities and broadens its reach into fast-growing infrastructure markets like data centers. Management described this as “highly complementary” to both the legacy process solutions and the broader PVF+ business.

Drivers of Future Performance

Management’s outlook centers on stabilizing operations, unlocking merger synergies, and capturing growth in infrastructure-driven markets like midstream and data centers.

• ERP optimization and cost reduction: Management expects temporary ERP stabilization costs to decline throughout the year, which should enable margin recovery and improved EBITDA flow-through. Cherechinsky noted that “flow-throughs to revenue [will be] well above our normal expected” as these costs subside and system integration progresses.
• Growth in infrastructure markets: The company is prioritizing expansion in midstream, gas utilities, and data centers. Investments in natural gas infrastructure, driven by rising power demand and LNG exports, are seen as key long-term catalysts. Orders tied to data center projects are expected to exceed $30 million this year with further growth anticipated.
• Working capital efficiency: DNOW aims to reduce excess inventory by year-end, targeting $100 million in cash generation from inventory reduction and at least $50 million from improved collections. Management believes this will be central to achieving its $100–$200 million cash from operations guidance.

Catalysts in Upcoming Quarters

In future quarters, the StockStory team will track (1) the pace of ERP system stabilization and the resulting impact on operating margins; (2) realization of merger-related cost synergies and integration milestones; and (3) revenue growth in targeted sectors such as midstream, gas utilities, and data centers. Progress in reducing excess inventory and improving working capital efficiency will also be key indicators of execution.

DNOW currently trades at $13.17, down from $13.50 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

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