McDermott Beats, Profit Soars – Analyst Blog

Energy-focused engineering and construction company McDermott International (MDR) reported better-than-expected fourth-quarter earnings, driven by robust performance from the Offshore Oil and Gas Construction segment. Earnings per share came in at 42 cents, 2 cents above the Zacks Consensus Estimate and 23 cents above the prior-year period.

 

This was the company’s fourth consecutive positive earnings surprise. McDermott has performed well during this period, with its average earnings surprise being 11.1%. This implies that the company has exceeded the Zacks Consensus Estimate by 11.1% over the last four quarters.

 

However, revenue of $1.5 billion was down 12.3% from the fourth quarter 2008 level. This was mainly on account of weak performance of the company’s Power Generation Systems segment.

 

McDermott’s segment results are as follows:

Offshore Oil and Gas Construction: Segment revenues were down 9.2% to $770.6 million as higher sales in the Middle East were more than offset by reduced levels in other areas. Operating income for the quarter came in at $97.6 million, compared to $14.9 million during the fourth quarter of 2008, reflecting strength in the Asia-Pacific and Middle East regions.

Contract improvements, a heavy workload throughout the year, and the mitigation of risks helped the company to drive the quarter. As of December 31, 2009, segment backlog was $3.4 billion, as against a backlog of $4.5 billion in the year-ago period.

 

Government Operations: The segment fetched revenues of $253.8 million, up from $212.2 million in the fourth quarter of 2008, primarily on the back of contribution from the December 2008 Nuclear Fuel Services acquisition (a provider of specialty nuclear fuels and related services).

However, operating income for the quarter was down 10.5% to $31.5 million, attributable to about $14 million in charges at McDermott’s Nuclear Fuel Services subsidiary, together with additional pension and depreciation and amortization expense. McDermott’s backlog as at the end of the quarter was $2.8 billion, down $100 million year over year.

 

Power Generation Systems: Revenues for McDermott’s Power Generation Systems segment decreased 28.1% to $435.2 million, adversely affected by reduced activity on customers’ major capital projects including new power plant construction and retrofits of existing power plants.

Operating income was down approximately 55.5% to $21.7 million on the back of severance related one time charges and increased R&D expense. McDermott ended the quarter with a backlog of $2.0 billion, compared to a backlog of $2.5 billion in the previous-year quarter.