This summary is based on the first quarter fiscal 2008 earnings call conducted by McDermott International, Inc. (MDR) on May 13, 2008.
Management:
VP, IR and Corporate Communications: John E. Roueche, III
Sr. VP and CFO: Michael S. Taff
Chairman and CEO: Bruce W. Wilkinson
Key Investors Issues
- EPS were 54 cents a share compared to 69 cents a share last year.
- Net income was $123 million from $158 million last year.
- Revenue rose 6.4% to $1.45 billion.
First Quarter Highlights
Actual results came in at the high end of pre-announced range with net income of $123.2 million or 54 cents per d share.
This amount compares to a $158.1 million or 69 cents per share in the 2007 quarter. McDermott''s net income compared to last year declined primarily due to previous announced information. First, the 2008 quarter was adversely affected by harsh weather in a number of regions and Offshore Oil & Gas Construction segment, which resulted in a period expense of about $20 million plus the deferral of project revenue and income to future periods. In last year, the company benefited from a high level approximately $40 million of project closeouts, change orders and settlements.
Revenues were $1.45 billion, approximately 6% above a year ago.
- McDermott''s operating income was $157.1 million compared to $192.5 million a year earlier. Strong increases in segment income at Power Generation and Government Operations were more than offset by the decline in Offshore Oil & Gas Construction, due primarily to the external events.
- McDermott''s other income and expense line item improved by $7.6 million compared to a year ago, generating other income of $6.5 million in 2008 compared to an expense of $1.1 million in the 2007 first quarter. This improvement was due to lower interest expense in the 2008 quarter reflecting $250 million debt retirement completed last year.
- Income tax line increased $7 million, despite the decline in pre-tax income. As usual, this perceived anomaly is the direct result of where McDermott is making money in the world. Since U.S. based segment had a strong quarter, this brought average income tax rate up.
- With segment income of about $53 million Offshore Oil & Gas Construction had its lowest quarterly performance since 2006. Weather-related delays were the primary detriment to the quarter, offsetting the record backlog and strength of business and fabrication facilities in the Middle East and Asia Pacific.
- The company ended the quarter with over $1.4 billion in cash and investments, down modestly from year-end. Changes in working capital were the primary reason cash stayed at a constant level. Another source of liquidity, bank facilities are committed until about 2011 and had no outstanding borrowings. Additionally, during April the company increased the size of offshore construction segment''s revolver by $300 million to support anticipated backlog growth and the required letters of credit.
Revenues in the Offshore Oil & Gas Construction segment were $645.9 million compared to $550.3 million for the same period a year ago.
- The year-over-year increase in revenues resulted from increased fabrication activities in the Middle East and Asia Pacific regions, partially offset by reduced activities in the Caspian region.
- Segment income was $52.9 million compared to $121.2 million in the 2007 first quarter. The decrease in segment income was primarily attributable to a high-level of unproductive offshore working days for major construction vessels, due to poor weather conditions in major areas of operation, and reduced activities in the Caspian region. In addition, the 2007 first quarter benefited from a significant amount of project close-outs, change orders and settlements, totaling approximately $40 million, compared to approximately $11 million in the first quarter of 2008.
- At March 31, 2008, segment backlog was $5.3 billion, compared to backlog of $4.2 billion and $4.8 billion at March 31, 2007 and December 31, 2007, respectively.
- In the Asia-Pacific region, the company had to mobilize and demobilizes four different times in Australia due to the path of multiple cyclones.
- In the Middle East, the company experienced four times the amount of weather delays in Qatar.
- Qatar was exacerbated by projects being in the beach bowl in the shallow water near-shore phases, where bad weather makes offshore operations extremely difficult, even the Gulf of Mexico had days lost to weather. All of these were compounded by having the DD-50 and KP1 and drydock for almost the entire period collectively working only about seven days in the quarter.
- The biggest impact in all of these was the inability to make progress on projects, which prevented the company from recording revenues and profits on those jobs. The company booked about $20 million period expense.
- The market remains active for new projects. The company booked over $1.2 billion in new awards and is off to a good start in the second quarter with an additional $500 million plus announced recently. With this high level of bookings official bids outstanding have declined a bit to the mid- $2 billion level reflecting this recent hit rate.
Power Generation Systems segment generated over $616 million revenues, producing double-digit margins.
- This level of profitability probably shouldn''t be annualized. But this first quarter certainly gets the segment off to a good start in 2008. With bookings of about $500 million in the first quarter, backlog grew about $900 million compared to a year ago and is just short of record year-end 2007 levels.
- Even with another good bookings quarter and strong backlog, the company has about $2.4 billion in bids outstanding. These bids included a number of scrubbers and SCRs, both new and replacement boiler projects, as well as several biomass and waste-to-energy proposals. The company has a high level of bids under the $25 million size. These smaller jobs don''t make for big news releases, but they certainly are sizeable when taken as a whole and they tend to be also at high margins.
Revenues in the Government Operations segment were $190.6 million compared to $161.4 million for the same period a year ago.
