On Aug 18, we maintained our Neutral recommendation on
Foster Wheeler AG
). We appreciate the company's better-than-expected earnings
performance in the second quarter of 2013.
The company is expected to benefit from growing demand for
energy and clients will continue to invest in new and upgraded
capacity to meet that demand. However, we are concerned about the
company's power segment, which has been witnessing declining
revenues due to lower orders.
Why the Reiteration?
On Aug 12, Foster Wheeler posted a 22% year-over-year increase in
earnings per share to 54 cents in the second quarter of 2013. The
results also exceeded the Zacks Consensus Estimate by a robust
Consolidated operating revenues in the quarter were $642 million,
down 6.3% year over year. Strong growth in the Global Engineering
and Construction group was fully offset by a steep decline in the
Global Power group. Revenues were well below the Zacks Consensus
Estimate of $866 million.
Following the release of the second-quarter results, the Zacks
Consensus Estimate for fiscal 2013 increased 0.63% to $1.60 per
share. Moreover, the Zacks Consensus Estimate for fiscal 2014
rose 0.5% to $2.02 per share.
Demand for energy will continue to grow over the long term and
clients will continue to invest in new and upgraded capacity to
meet that demand. In this regard, Foster Wheeler was successful
in booking contracts for front-end engineering work, which is
frequently the precursor to subsequent significant work for
engineering, procurement and construction.
Further, Foster Wheeler is witnessing a growing need for capacity
additions in a number of developing countries. There is often a
preference for solid fuel boilers in these countries.
The company's CFB technology continues to be its preferred
solid fuel technology when a client has a hard-to-burn fuel or
needs flexibility in fuel type. Foster Wheeler is an undisputed
market leader in solid fuel flexibility, which provides it the
competitive advantage in parts of the world that value and need
this kind of power generation.
However, the demand for the products and services of the Global
Power Group was negatively impacted during the quarter due to
lack of boiler orders. Therefore, new orders (measured in terms
of future revenues) received by the segment in the second quarter
of 2013 was also significantly lower by 26% to $199 million
compared with $268 million in the year-ago quarter.
Similarly, new orders in the segment were down 22.0% year over
year to $89 million from $114 million. The decline was
attributable to slippage of award dates for committed key
prospects, which resulted in a lack of boiler orders. Foster
expects the decline to continue through 2013 for the Global Power
SMITH (AO) CORP (AOS): Free Stock Analysis
BAKER (MICHAEL) (BKR): Free Stock Analysis
FOSTER WHELR AG (FWLT): Free Stock Analysis
VSE CORP (VSEC): Free Stock Analysis Report
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Other Stocks to Look For
Currently, Foster retains a Zacks Rank #3 (Hold).
Some other stocks that are performing well in the industry where
Foster operates include
Michael Baker Corp.
AO Smith Corp.
). Michael Baker Corporation carries a Zacks Rank #1 (Strong
Buy), while VSE Corp. and AO Smith Corp. carry a Zacks Rank #2