This summary is based on the second quarter fiscal 2008 earnings call conducted by McDermott International Inc. (MDR) on August 12, 2008.
Management:
-
Sr. VP and CFO: Michael S. Taff
-
Chairman and CEO: Bruce Wilkinson
-
VP of IR: Jay Roueche
Key Investors Issues
- Net income of $177.5 million or 77 cents per diluted share, was almost 19% above last year''s $149.4 million or 66 cents per share.
- Revenues were almost $1.8 billion, 26% above a year ago.
- The firm recently completed the announced plans for three transactions with a combined value in the $200 million range.
Half Year Highlights:
- Revenues rose 14% to $3.2 billion from $2.8 billion in 2007 .
- Net income dropped 2% to $301 million or $1.33 a share, from $307 million or $1.38 a share in 2008.
Second Quarter Highlights
Net income of $177.5 million or 77 cents per diluted share, was almost 19% above last year''s $149.4 million or 66 cents per share, which included $50 million in one-time benefits from contract cancellations and settlements in the Power business.
- Revenues were almost $1.8 billion, 26% above a year ago, with the increase coming from the Offshore Oil and Gas Construction segment where revenues were up 50% or almost $300 million.
- In addition, the other segments, Power Generation Systems and Government Operations also reported revenue growth adding a combined $82 million to a year ago levels.
- McDermott''s operating income was $231.1 million compared to $181.8 million a year ago with strong increases at Power Generation Systems and Government Operations.
- The firm ended the quarter with over $1.3 billion in cash and investments, with changes in working capital the primary reason.
Cash and investments declined about $100 million sequentially as the firm is working off some of the advance billings it has built up.
- The firm recently completed the announced plans for three transactions with a combined value in the $200 million range.
- It closed the acquisition of the Intech group of companies in July to expand B&W''s capability in servicing the U.S. commercial nuclear service market strengthening its position in the Canadian nuclear service market.
- The largest proposed transaction of the three is our recently announced planned acquisition of Nuclear Fuel Services or NFS.
- The last purchase which was closed last week is Delta Power, which provides operations and maintenance services to nine different power plants.
Segment Highlights:
-
Offshore Oil and Gas Construction had segment income of $98 million or about 42% of thetotal, well above the weather affected first quarter of 2008, an improvement to a year ago.
- Revenues of $872 million were a quarterly record for the segment, but it was about $115 million below the amount the firm expected to roll off from backlog.
- The 2008 backlog has more procured items and higher number of less risky cost plus and unit rate components in the contracts.
The firm has been outstanding in managing material escalation like steel, but there have been inflationary effects felt elsewhere, namely fuel, labor, and subcontractors, which have eaten somewhat into the contingency.
- It is positioning the offshore construction business for long-term growth, by incurring costs which are longer-term investments, such as starting of new facilities in Mexico, China, Kazakhstan, and expanding our subsea construction business.
- Additionally, the benefits from change orders and other closeouts have declined thus far year-over-year and at the same time, the SG&A has increased in the higher overall workload.
-
Power Generation Systems reported a $106 million in segment income, clearly, its best in history.
- Improved profitability on existing contracts within the boiler and environmental retrofit project portfolio coupled with the associated percentage of completion effect and combined with a high level of parts and services work drove the quarter.
- The segment generated almost $700 million in revenues reducing record operating income, which resulted in mere double-digit margins.
A number of opportunities were realized including some project closeouts and settlements, improved contract performance with percentage of completion effect and timing benefits.
- With bookings of over $500 million, backlog grew over $200 million compared to a year ago, but was down modestly on a sequential basis.
- The firm has about $2.6 billion of bids outstanding, including several boiler projects for coal, waste-to-energy, and biomass, as well as the sizable number of environmental projects plus numerous bids under the 25 million size.
- In addition, the firm expects to begin seeing an increased international award activity on the OEM retrofit and service side, which will be incremental to the strong North American market share.
- The Washington D.C. federal appeals court overturned the Clean Air Interstate Rule known as CAIR.
-
Government Operations produced its highest segment income since inception with $42.5 million in the quarter.
- It was another strong quarter from site management activities, which largely comes through as equity income, as well as higher volumes in the manufacture of nuclear components, both for commercial and government use.
- The firm had some timing benefits on procurement contracts, which brought forward about $40 million in revenues.
Revenues were over $225 million, 34% increase above a year ago, elevated by about 40 million in procurement contracts executed.
