McDermott (MDR) Q2 Earnings Top Estimates, Revenues Jump Y/Y

Shutterstock photo

McDermott International, Inc. MDR recently reported earnings of 29 cents per share in second-quarter 2018, surpassing the Zacks Consensus Estimate of 15 cents. The better-than-expected earnings can be primarily attributed to solid operational execution. However, the bottom line fell from the year-ago quarter's earnings of 38 cents due to increased costs and expenses.

McDermott generated revenues of $1.7 billion in the quarter, which were nearly 120% higher than the prior-year figure of $789 million and also surpassed the Zacks Consensus Estimate of $1.6 billion. The rise in revenues was supported by Cameron and Freeport LNG projects, ethylene production project LACC, Saudi Aramco Safaniya 5 and Woodside Greater Western Flank II.

The results incorporate the effects of its strategic combination with CB&I that occurred on May 10.

McDermott International, Inc. Price, Consensus and EPS Surprise

McDermott International, Inc. Price, Consensus and EPS Surprise | McDermott International, Inc. Quote

Costs and Expenses

Cost of operations increased from $650 million in the year-ago quarter to about $1.5 billion in the quarter under review. While expenses in research and development increased to $5 million in the second quarter of 2018 from $1 million in the year-ago period; that of selling, general and administrative rose to $75 million from the prior-year quarter's $50 million. All these, combined with restructuring and integration costs, transaction expenses and other intangibles amortization resulted in a total expense of $1.7 billion from the year-ago figure of $701 million.

Revenue Pipeline

The Revenue Pipeline of the company includes Backlog, Bids & Change Orders Outstanding and Target Projects. As of Jun 30, McDermott had a backlog of $10.2 billion compared with $3.3 billion a year ago. It had $19 billion in Bids & Change Orders Outstanding and $78.5 billion in Revenue Pipeline at the end of the second quarter compared with $20.1 billion in the year-ago quarter.

Balance Sheet and Capital Expenditure

Capital expenditure of McDermott was about $24 million during the quarter compared with almost $18 million in the year-ago quarter.  In the quarter, the company generated $374 million in free cash flow. As of Jun 30, 2018, the company had cash and cash equivalents of $814 million and long-term debt of approximately $3.4 billion. Its debt-to-capitalization ratio was about 51.5%. The company also has $879 million under a revolving credit facility. The company's balance sheet reflects the acquisition of CB&I.

Second-Half 2018 Guidance

The company provided guidance for the second half of the year. McDermott expects revenues in the $4.8-$5.1 billion range. The company expects EBITDA in the range of $350-$390 million. Capital expenditure is anticipated to be around $80 million. Adjusted net income is now anticipated to be approximately within $200-$210 million. Also, McDermott expects free cash flow within $430-$450 million. EPS is estimated between 74 cents and 80 cents.

Zacks Rank & Other Key Picks

Currently, Houston, TX-based McDermott sports a Zacks Rank #1 (Strong Buy). Investors interested in the Energy sector can opt for other top-ranked stocks like Canadian Natural Resources Limited CNQ , ConocoPhillips COP and Cheniere Energy, Inc. LNG . While Canadian Natural Resources sports a Zacks Rank #1, ConocoPhillips and Cheniere Energy both carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

Calgary, Canada-based Canadian Natural Resources is an upstream energy company. The company's top line for 2018 is anticipated to improve 35.3% year over year, while its bottom line is expected to increase more than 168%.

Houston, TX-based ConocoPhillips is an integrated energy company. The company's top line for 2018 is likely to improve 14.1% year over year. In the last four reported quarters, the company delivered an average positive earnings surprise of 27.6%.

Houston, TX-based Cheniere Energy mainly focuses on liquefied natural gas-related businesses. The company's top line for 2018 is anticipated to improve 25.9% year over year, while its bottom line is expected to increase more than 225%.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

McDermott International, Inc. (MDR): Free Stock Analysis Report

Canadian Natural Resources Limited (CNQ): Free Stock Analysis Report

Cheniere Energy, Inc. (LNG): Free Stock Analysis Report

ConocoPhillips (COP): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

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

This article appears in: Investing , Business , Earnings , Stocks
Referenced Symbols: MDR , CNQ , LNG , COP

More from Zacks.com




Equity Research

Research Brokers before you trade

Want to trade FX?