McDermott International Reports Loss, Shares Fall - Analyst Blog

On May 7, 2014, offshore oil and gas-focused engineering and construction firm, McDermott International MDR reported weak first-quarter 2014 results, as income from the backlog projects could not cover up expenses during the quarter. The weak results led to a 5.7% decline in the company's share price on the NYSE.

The company reported loss per share of 21 cents from continuing operations against the year-ago quarter earnings of 9 cents. The loss was wider than the Zacks Consensus Estimate of 12 cents loss per share.

McDermott generated revenues of $603.8 million in the quarter, down 25.2% from the first quarter of 2013. The figure also failed to beat the Zacks Consensus Estimate of $665.0 million.

Total Expenses

Total costs and expenses decreased 13.8% to $646.6 million from the year-ago quarter.

Backlog

At the end of the first quarter, McDermott had a backlog of $4,364.4 million, down from $4,802.2 million a year ago.

Balance Sheet

Capital expenditure for McDermott during the quarter was $37.9 million. As of Mar 31, 2014, McDermott had cash and cash equivalents of $268.1 million and long-term debt (including current maturities) of approximately $308.2 million (representing a debt-to-capitalization ratio of approximately 17.9%).

Agreement

McDermott has entered into a deal with Helix Energy Solutions Group Inc. HLX, an offshore energy firm. Per the deal, McDermott will get remotely operated vehicle (ROV) services along with certain equipment for its subsea construction and pipelay support vessels fleet. McDermott is expected to receive the services for a period of three years.

Zacks Rank & Other Picks

McDermott generates its revenues from companies in the oil and gas exploration and production (E&P) industry, a highly volatile and cyclical sector that is directly exposed to commodity prices. A potential drop in oil and gas prices could curtail deepwater drilling and dampen subsea equipment demand, adversely affecting bookings at McDermott.

Moreover, McDermott has historically used bolt-on acquisitions to plug holes in its product/service portfolio. The company may find it difficult to complete accretive transactions in the future, which could negatively impact its growth rate.

As a result, McDermott currently retains a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at better-ranked players in the same industry like Cameron International Corporation CAM and Matrix Service Company MTRX. Both stocks sport a Zacks Rank #2 (Buy).