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