On Nov 28, we maintained our Neutral recommendation on
Foster Wheeler AG
) based on our concerns about the company's moderate
third-quarter earnings performance.
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 Nov 8, Foster Wheeler posted an 8.8% year-over-year
decrease in earnings per share to 52 cents in the third quarter
of 2013. However, the results exceeded the Zacks Consensus
Estimate by 23.8%.
Consolidated operating revenues in the quarter were $801
million, down 0.6% 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 $879 million.
Following the release of the third-quarter results, the Zacks
Consensus Estimate for fiscal 2013 increased 1.8% to $1.62 per
share. Moreover, the Zacks Consensus Estimate for fiscal 2014
declined 1.5% to $1.98 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 an increasing 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 circulating Fluidized-Bed (CFB) steam generator
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
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
Currently, Foster retains a Zacks Rank #3 (Hold). However,
some better-ranked energy and utility stocks include
AO Smith Corp.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
SMITH (AO) CORP (AOS): Free Stock Analysis
ENERSYS INC (ENS): Free Stock Analysis Report
FOSTER WHELR AG (FWLT): Free Stock Analysis
VSE CORP (VSEC): Free Stock Analysis Report
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