McDermott International Down on Weak Q4 Earnings - Analyst Blog


Offshore oil and gas-focused engineering and construction firm, McDermott International ( MDR ) reported weak fourth-quarter 2013 results. The company's operating loss in Malaysia-based deepwater pipelay development, as one its vessels was not operational owing to thruster failure, hampered the fourth-quarter results. This was however partially compensated by a fall in total expenses. The weak results led to a 9.5% decline in the company's share price on the NYSE, in after-market trade hours.

Loss per share from continuing operations came in at $1.37 against the year-ago quarter earnings of 17 cents. The bottom line also compared unfavorably with the Zacks Consensus Estimate of earnings of 16 cents per share.

McDermott generated revenues of $517.3 million in the quarter, down 48.1% from the fourth quarter of 2012. The figure also failed to beat the Zacks Consensus Estimate of $825.0 million.

For the year ended Dec 31, 2013, McDermott reported loss from continuing operations of $2.18 per share, much wider than the Zacks Consensus Estimate of a loss of 65 cents per share. The number also compared unfavorably with a profit of 66 cents per share in 2012. Revenues were recorded at $2.7 billion against the year-ago number of $3.6 billion.

Total Expenses

Total costs and expenses decreased 9.1% to $829.8 million from the year-ago quarter.


At the end of the fourth quarter, McDermott had a backlog of $4,802.2 million compared with $5,067.2 million a year ago.

Balance Sheet

Capital expenditure for McDermott during the quarter was $58.6 million. As of Dec 31, 2013, McDermott had cash and cash equivalents of $118.7 million and long-term debt (including current maturities) of approximately $88.6 million (representing a debt-to-capitalization ratio of approximately 5.8%).

Zacks Rank & Other Picks

McDermott derives its revenues from companies in the oil and gas exploration and production (E&P) industry, a highly volatile and cyclical sector that is directly exposed to commodity prices. A potential drop in oil and gas prices could restrain deepwater drilling and dampen subsea equipment demand, adversely affecting bookings at McDermott.

Moreover, McDermott has historically used bolt-on acquisitions to plug holes in its product/service portfolio. The company may find it difficult to complete accretive transactions in the future, which could negatively impact its growth rate.

McDermott currently retains a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at better-ranked players in the energy sector like Range Resources Corporation ( RRC ), Helmerich & Payne Inc ( HP ) and Patterson-UTI Energy Inc. ( PTEN ). All the stocks sport a Zacks Rank #1 (Strong Buy).

HELMERICH&PAYNE (HP): Free Stock Analysis Report

MCDERMOTT INTL (MDR): Free Stock Analysis Report

PATTERSON-UTI (PTEN): Free Stock Analysis Report

RANGE RESOURCES (RRC): Free Stock Analysis Report

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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: HP , MDR , PTEN , RRC

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