Chicago Bridge & Iron (CBI) Q4 Earnings & Revenues Fall Y/Y

Chicago Bridge & Iron Company N.V. CBI reported fourth-quarter 2017 adjusted earnings of 48 cents per share, beating the Zacks Consensus Estimate by a penny. However, the metric slumped 43.5% on a year-over-year basis due to the decline in revenues and effect of high non-operating charges that trickled down to the bottom line. 

In full-year 2017, the company incurred a net loss of $1.5 billion or $14.44 per share.

Inside the Headlines

Chicago Bridge & Iron posted fourth-quarter 2017 revenues of $1,693.6 million, missing the Zacks Consensus Estimate of $1,775 million. The top line also plunged 33.3% year over year. This lackluster performance was largely as a result of revenue declines across most of the company’s segments.

Chicago Bridge & Iron Company N.V. Price, Consensus and EPS Surprise

Chicago Bridge & Iron Company N.V. Price, Consensus and EPS Surprise | Chicago Bridge & Iron Company N.V. Quote

In the full year, revenues were down 22.1% year over year to $6.7 billion. The decline can be primarily attributable to decrease in revenues at the Engineering & Construction and the Fabrication Services segments. Backlog for the company came in at $11.4 billion at the end of 2017 compared with $13 billion at the end of 2016.

Fourth-quarter gross profit rose 9.3% year over year to $84.7 million while gross margin expanded by 120 basis points to 5%. The improvement in margins was driven by a steep decline in cost of revenues year over year.

Moreover, the company booked new awards worth $1,284.8 million in the quarter compared with $932.6 million in the prior-year quarter. New awards for 2017 came in at $5.8 billion, reflecting an increase of 17% year over year, thereby reflecting the company’s strong competitive position in refining and petrochemical markets.

Segmental Revenues

The company’s revenues from its Engineering & Construction segment came at $1,224.4 million, down 11.1% from the prior-year quarter. New awards in this segment totaled $754.3 million in the quarter under review, reflecting a massive increase compared with its value of $334.3 million in the year-ago quarter.

Fabrication Services quarterly revenues totaled $372.6 million, down 36% year over year. New awards received by this segment decreased to $399.8 million at the end of the third quarter compared with $429.6 million in the prior-year quarter.

Meanwhile, revenues from the Technology segment surged 48.8% and came in at $96.6 million.

Liquidity

Chicago Bridge & Iron’s cash and cash equivalents as of Dec 31, 2017 came in at $354.6 million compared with $490.7 million a year ago. Net cash used in operating activities in the quarter came in at $909.4 million, a turnaround from the net cash generated from operating activities of $654.5 million in the comparable period last year.

Major Developments

In December 2017, Chicago Bridge & Iron and McDermott MDR agreed to merge in an all-stock deal worth about $6 billion, thus creating an extensive engineering, procurement, construction and installation company. The combined company will be completely vertically integrated and is likely to offer end-to-end engineering, procurement, construction and installation services to the onshore and offshore energy sectors. The agreement is expected to close in the second quarter of 2018.

Per the contract, McDermott’s shareholders will own 53% of the combined entity while the remaining stake will be owned by Chicago Bridge & Iron’s shareholders. Notably, the deal is expected to be cash-accretive (excluding one-time costs) within the first year after its closure. In 2019, both the companies are expected to generate annualized cost synergies of $250 million and sizeable revenue synergies in addition to Chicago Bridge & Iron’s $100 million cost-reduction program. (Read More)

Furthermore, in December last year, the company decided not to proceed with the sale of its Technology business, reclassifying the business under continuing operations in the reported quarter.

To Conclude

Chicago Bridge & Iron anticipates multiple opportunities in its key end markets including the U.S., East Africa and the Middle East. For the U.S. and Middle East, solid petrochemical investment on ethylene and low feedstock cost are projected to fuel growth.

Moreover, the company’s comprehensive corporate and operating cost reduction program, which includes non-personnel and discretionary cost reductions and personnel-related reductions, is anticipated to generate savings of about $100 million annually.

However, the Zacks Rank #3 (Hold) company’s margins have been significantly affected by a rise in cost on IPL and Calpine power projects and execution of its other projects in recent times.

Stocks to Consider

A few better-ranked stocks in the same space include Potlatch Corporation PCH and Jacobs Engineering Group Inc. JEC. While Potlatch sports a Zacks Rank #1 (Strong Buy), Jacobs Engineering carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Potlatch has a decent earnings surprise history, surpassing estimates thrice in the trailing four quarters, with an average beat of 36.9%.

Jacobs Engineering has an excellent earnings surprise history, exceeding estimates in the trailing four quarters, with an average beat of 11.4%.

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