Energy-focused engineering and construction company
McDermott International
(
MDR
) reported weaker-than-expected fourth quarter and full year 2011
results, hurt by higher operating costs and poor performances from
various projects.
The company reported earnings per share from continuing
operations of 4 cents in the quarter, below the Zacks Consensus
Estimate as well as the prior-year quarter result of 19 cents. The
underperformance can be attributed to steeper operating expenses
primarily due to additional charges on two Atlantic projects.
For the full year, earnings per share from continuing operations
were 64 cents, missing our projection of 79 cents per share.
Comparing year over year, reported result declined 36.0% from $1.00
per share.
McDermott generated revenues of $816.2 million in the quarter,
up an impressive 51.2% from fourth quarter 2010. The quarterly
performance was buoyed by strong contributions from the
Asia-Pacific belt (attributable to increased marine activity on
large engineering, procurement, construction and installation or
EPCI projects) along with higher activity in the Middle East and
Atlantic regions. However, reported revenues failed to meet our
estimate of $905 million.
McDermott generated revenues of $3,445.1 million in fiscal 2011,
compared with $2,403.7 million in 2010.
The company's operating income was $31.4 million (down 47.0%
year over year) in the quarter and $250.7 million in 2011 (versus
$314.9 million in 2010). These results were adversely affected by
losses from various projects.
Backlog
At the end 2011, McDermott had a backlog of $3,881.1 million,
compared with $5,038.9 million in the prior year. As of September
30, 2011, backlog was $4,255.4 million.
Balance Sheet
As of December 31, 2011, the company had $570.9 million cash on
hand and long-term debt (including current maturities) of $93.7
million, representing a debt-to-capitalization ratio of 5.1%.
Outlook
McDermott expects to reap strong benefits from the Inpex Ichthys
project and other lucrative ventures in 2012. The Inpex Ichthys
subsea contract was awarded to the Australian unit of the company
in late January. With an estimated value of $2.0 billion, this is
the biggest subsea contract for McDermott.
Our Recommendation
We, however, believe that the company's performance remains
highly susceptible to the volatile and cyclical oil and gas sector.
A potential drop in oil and gas prices could curtail deepwater
drilling and dampen subsea equipment demand, adversely affecting
bookings.
Additionally, following
The Babcock & Wilcox Company
(
BWC
) spin-off, McDermott is now less diversified with a greater
business risk profile. The company also faces stiff competition
from peers such as
Chicago Bridge & Iron Company N.V.
(
CBI
) and
Foster Wheeler AG
(
FWLT
).
Houston, Texas-based McDermott International operates as a
global engineering, procurement, construction, and installation
company that focuses on designing and executing complex offshore
oil and gas projects. The company has access to most major offshore
oil and gas producing regions, including the U.S., Mexico, Canada,
the Middle East, India, the Caspian Sea and Asia Pacific.
Hence, we see little reason for investors to own the stock and
maintain our long-term Underperform recommendation.
BABCOCK&WILCOX (
BWC
): Free Stock Analysis Report
CHICAGO BRIDGE (
CBI
): Free Stock Analysis Report
FOSTER WHELR AG (
FWLT
): Free Stock Analysis Report
MCDERMOTT INTL (
MDR
): Free Stock Analysis Report
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