Foster Wheeler Posts Dismal Q3 Earnings, Revenues Up Y/Y - Analyst Blog

Foster Wheeler AG (FWLT) reported third-quarter 2014 adjusted earnings of 31 cents per share, falling short of the Zacks Consensus Estimate of 53 cents by 41.5%. On a GAAP basis, the company reported earnings of 25 cents per share, significantly down from 50 cents per share earned in the third-quarter 2013.

Results were impacted by an increase in costs associated with its AMEC deal, along with a rise in the effective tax rate. The bottom line was also impacted by the additional asbestos-related charges in the quarter. However, the company has also been benefiting from continuing strength in the Global Engineering and Construction.

Total Revenue

Operating revenues in the quarter were $859.7 million, an increase of 7.2% year over year. Revenues improved due to strong growth in the Global Engineering and Construction group, partially offset by sluggishness in the Global Power group. However, revenues were well below the Zacks Consensus Estimate of $948 million.   

Segment Results

Global Engineering and Construction (E&C) group's operating revenues came in at $693.7 million, while operating revenues (FW scope) were $604.4 million, up 37.2% from $440.6 million in the prior-year period. Revenue growth was driven by increased volume of work.

Global Power Group (GPG) operating revenues were $166 million, while operating revenues (FW Scope) were $165.6 million, down 10.3% from $184.7 million in the year-ago quarter. The decline was primarily owing to a continued decrease in the volume of boiler orders. However, the segment reported a healthy increase in backlog level in the quarter, which is expected to lead to improved segment revenues, going forward.

Income & Expenses

Contract profit in the quarter was $130.7 million, down 14.8% from the prior-year quarter, primarily due to a significant rise in the cost of operating revenues. The company's selling, general and administrative expenses (SG&A) stood at $80.1 million, declining from $85.5 million in the year-ago quarter.

E&C's EBITDA was $62.9 million in the quarter, up from $59.9 million in the prior-year quarter. GPG's EBITDA was $20.7 million, a decrease from $45.4 million in the prior-year quarter.  

Balance Sheet

Foster Wheeler exited the quarter with cash and cash equivalents of $447.7 million, down from $556.2 million at the end of Dec 31, 2013. Long-term debt was $96.5 million, compared with $113.7 million at the end of Dec 31, 2013. Shareholders' equity was $835.6 million, an increase from $750.1 million at the end of Dec 31, 2013.

Looking Ahead

Foster Wheeler remains positive about its growth in 2014, driven by strong performance of its E&C segment. However, the GPG segment is expected to remain sluggish going forward, owing to the adverse timings and mix of new orders.

Also, the company's forthcoming alliance with AMEC is expected to aid growth in the coming quarters by expanding its production capacity. Alongside, the deal is likely to strengthen the company's vertical supply chain.

Zacks Rank

Foster currently carries a Zacks Rank #4 (Sell). Some other better-ranked stocks include Pernix Group Inc (PRXG), Quanta Services, Inc. (PWR) and AO Smith Corp. (AOS). All these stocks carry a Zacks Rank #2 (Buy).

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