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Layne Christensen Posts Loss in Q1, Misses Ests - Analyst Blog

By: Zacks.com
Posted: 6/17/2014 9:00:00 AM
Referenced Stocks: MSA;ITT;AOS;PWR;LAYN

Layne Christensen Co. ( LAYN ) announced fiscal first-quarter 2015 (ended on Apr 30, 2014) results yesterday after the closing bell. The company reported a net loss of $27.7 million or $1.41 per share, substantially missing the Zacks Consensus Estimate of a loss of 35 cents by 302.9%. In the prior-year quarter, the company had reported a net loss of $23.8 million or $1.24 per share.

Revenues

The company's revenue declined to $191.2 million from $226.4 million in the prior-year quarter. Revenues also lagged the Zacks Consensus Estimate of $206.0 million.

The company's top line was impacted by dismal performance of the Heavy Civil and Mineral Services, which completely offset the growth in Inliner, Geoconstruction and Energy Services. The Water Resources business also delivered a weaker-than-expected performance in the quarter.

Segment Details

Revenues from Water Resources declined 2.9% to $43.1 million. However, its pre-tax income increased to $1.8 million benefiting from the segment's initiatives to reduce costs and its strategy to integrate some of its offices. The segment reported an increase in the backlog level from $59.8 million in the last quarter to $84.4 million.

The Inliner segment's revenues increased 10.6% to $33.5 million while its pre-tax income increased to $4.8 million. The segment primarily benefited from the increase in the existing contract's work orders and lower compensation expenses in the quarter. The segment's backlog also increased 15.5% over the last quarter to $70.6 million.

Revenue from Heavy Civil decreased 33.1% year over year to $49.4 million. The segments pre-tax loss also widened significantly due to the adverse weather conditions and the segment's exit from the hard-bid multi-year contracts in the quarter led to additional loss for the company.

Sales from Geoconstruction surged 51.0% to $32.6 million while its pre-tax income came in at $1.6 million compared to a loss of $5.4 million in the prior year quarter. The segment benefited from the initiation of contract work that the company had received in the last couple of quarters. The total value of these contracts amounted to about $150 million. The segments backlog level stood at $133.8 million compared with $118.0 million as on Jan 31, 2014.

Revenues were particularly sluggish in Mineral Services, declining 45.8% year over year to $29.5 million in the quarter. The segment's pre-tax loss also widened significantly in the quarter. The division has been affected by the ongoing weakness in the mining industry across the globe especially in Africa. However, the segment's backlog increased to $4.4 million from $2.7 million at the end of the last quarter.

Revenue from Energy Services rose 57.7% year over year to $2.8 million leading to a year-over-year decrease in the pre-tax loss as a percentage of revenues. Segment growth was driven by its water recycling business that was completed in the latter half of the last fiscal. The business is now reaping benefits from the successful completion of some of its contracts in the domain. The division providing end-to-end water solutions is now also receiving extendable contracts. In the first quarter, the segment won 14 master service agreement (MSA) contracts from E&P companies and management is expecting to win as many as 6 more MSA contracts in the year.

Sales in the Other segment declined 20.1% year over year to $3.9 million.

Cash and Balance Sheet

Layne Christensen ended the quarter with cash and equivalents of $21.2 million, compared to $35.0 million as on Jan 31, 2014. The company's total long-term debt was $147.9 million at the end of the quarter, wider than $108.3 million in the last quarter.

Outlook

Looking ahead, management expects the strength in its Water Resources division to continue owing to the ongoing sourcing activities in water deprived regions in the U.S. especially in the western region. The company is also positive about the performance of its Geoconstruction business in most of the regions barring Brazil. Layne Christensen also anticipates its Energy division to benefit from contract wins along with product development and implementation activities. The company's water sourcing and transfer activities are now at their peak and treatment business is likely to gain traction going forward.

The company is focused on reducing its operating expenses by $12 - $20 million per year. It is also taking initiatives to minimize its exposure to under-performing businesses.

Layne Christensen currently has a Zacks Rank #3 (Hold). Investors interested in this sector could also consider better-ranked stocks including AO Smith Corp. ( AOS ), ITT Corp. ( ITT ) and Quanta Services, Inc. ( PWR ). All of these carry a Zacks Rank #2 (Buy).


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