Foster Wheeler Q1 Earnings Miss, Up Y/Y - Analyst Blog

Foster Wheeler AG FWLT reported first-quarter 2014 adjusted income (excluding the impact of one-time items) of $19.1 million or 19 cents per share. Earnings fell 47.2% short of the Zacks Consensus Estimate of 36 cents. In the prior year quarter, the company had reported an income of $18.9 million or 18 cents per share. On a GAAP basis, the company reported earnings of $17.1 million or 17 cents per share, compared with an income of $16.9 million or 16 cents per share in first-quarter 2013.

The earnings in the quarter were impacted by the decrease in operating earnings before interest, taxes, depreciation, and amortization (EBITDA) along with an increase in the effective tax rate. The GAAP earnings were impacted by the additional asbestos related charges in the quarter. However, the company has been taking persistent efforts to optimize its cost structure, which is reflected in the year-over-year growth. The company has also been benefiting from the continuing strength in the Global Engineering and Construction while its Global Power Group also showed signs of improvement in the quarter.

Total Revenue

The company's operating revenues in the quarter were $733.7 million, a decline of 17.1% compared with $790.1 million reported in the prior year. The company's revenues declined due to the sluggishness in the Global Power group despite strong growth in the Global Engineering and Construction group. Also, the top line was impacted by lesser-than-anticipated profit enhancement opportunities coupled with an unfavorable utilization rate. Revenues were also well below the Zacks Consensus Estimate of $889 million.   However, the company reported strong consolidated scope backlog level of over $3.8 billion, reflecting a year-over-year increase of more than 28%.

Segment Results

Global Engineering and Construction (E&C) group's operating revenues stood at $553.3 million, while its operating revenues (FW scope) were $443.6 million, up 4.5% from $424.7 million in the prior-year period. Revenue growth was driven by increased volume of work and a healthy backlog level.

Global Power Group (GPG) operating revenues stood at $180.4 million, while its operating revenues (FW Scope) were $178.1 million, down 10.5% from $199.3 million in the year-ago quarter. The decline was attributable to a continued decrease in the volume of boiler orders. However, in the quarter the segment reported a healthy increase in backlog level, which is expected to lead to improved segment revenues going forward.

Income & Expenses

Contract profit in the quarter was $115.5 million, down 3.3% from the prior-year quarter, primarily due to a decline in operating revenues. The company's selling, general and administrative expenses (SG&A) expense stood at $82.0 million, declining from $90.3 million in the year-ago quarter.

E&C's EBITDA was $40.0 million in the quarter, up from $35.2 million in the prior-year quarter. GPG's EBITDA was $28.7 million, an increase from $24.7 million in the prior-year quarter.  

Balance Sheet

Exiting the quarter, the company's cash and cash equivalents were $527.9 million, down from $556.2 million at the end of Dec 31, 2013. Long-term debt was $113.0 million, marginally down from $113.7 million at the end of Dec 31, 2013. Shareholders' equity was $774.1 million, down from $750.1 million at the end of Dec 31, 2013.

Looking Ahead

Foster Wheeler remains positive about its growth in 2014, owing to the healthy backlog and new wins, especially the performance of its E&C segment. The company also expects its utilization rate in the year to benefit significantly from the increasing volume in the business.

Also, the company's recent alliance with AMEC is expected to aid growth going forward by expanding its production capacity. Alongside, it is likely to strengthen the vertical supply chain.

Cash Dividend

Foster Wheeler's shareholders have approved the proposed cash dividend of 40 cents per share that is to be paid on May 21, 2014, to shareholders of record as of May 7, 2014.

Zacks Rank

Foster currently carries a Zacks Rank #4 (Sell).

Performance of Other Stocks in the Same Sector

EMCOR Group Inc. EME reported robust first-quarter 2014 results with adjusted earnings of 64 cents per share easily surpassing the Zacks Consensus Estimate of 53 cents.

Quanta Services Inc. PWR reported first-quarter 2014 non-GAAP earnings of 44 cents a share, beating the Zacks Consensus Estimate of 37 cents a share.

AECOM Technology Corporation ACM reported earnings of 41 cents a share for second-quarter fiscal 2014, which was in line with the Zacks Consensus Estimate.