We are reaffirming our Neutral recommendation on Foster Wheeler
AG (FWLT). The company reported weak operating performance in the
second quarter of 2012, with earnings and revenues declining 44%
and 20% year over year, respectively.
The penalty of an adverse court decision, foreign exchange loss
of $3.2 million and a quarterly delay in profit recognition from a
recently signed agreement in the Global Power Group led to a loss
in the reported quarter. However, Foster Wheeler witnessed an
improvement in demand for its services globally, resulting in an
increase of Scope backlog during the quarter.
The company received a number of small and medium-sized
contracts during the quarter and is slowly executing its previous
backlog. However, weak market conditions remain a matter of
The growing demand for energy globally, is expected to 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 is successful in booking contracts for front-end
engineering work, which is frequently the precursor to subsequent
significant work for engineering, procurement and construction.
In the longer term, Foster Wheeler believes that the global
demand for electrical energy will continue to grow and
solid-fuel-fired steam generators will continue to fill a
significant portion of this incremental generating capacity.
The fuel-flexibility of CFB steam generators enable them to burn
a variety of fuels other than coal and produce carbon-neutral
electricity when fired by biomass. In addition, the company's steam
generators can be designed to incorporate supercritical technology,
which significantly improves efficiency and reduces emissions.
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.
However, as the company's operations are concentrated in four
industries, including oil & gas, oil refining,
chemical/petrochemical and power, it may be adversely impacted by
economic or other developments in these industries. In addition,
the company is subject to various environmental laws and
regulations in the countries where it operates.
If it fails to comply with these laws and regulations, it may
incur significant costs and penalties. The company's business may
be adversely impacted by regional, national and/or global
requirements to significantly limit or reduce greenhouse gas
emissions in the future.
Foster Wheeler currently has a Zacks Rank #3 which implies short
term Hold recommendation on the stock.
FOSTER WHELR AG (FWLT): Free Stock Analysis
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