Offshore oil and gas-focused engineering and construction firm, McDermott International (MDR), reported weak third-quarter 2013 results owing to a fall in revenues. This was partially compensated by better performance in the Middle East region and lower expenses.
Loss per share from continuing operations came in at 27 cents in contrast to the year-ago quarter earnings of 21 cents. The results were also significantly wider than the Zacks Consensus Estimate of a loss of 4 cents.
McDermott generated revenues of $686.9 million in the quarter, down 33.2% from the third quarter of 2012 and also failed to beat the Zacks Consensus Estimate of $751.0 million. Revenues suffered as several key projects that were ongoing in the year-ago quarter had already reached completion.
Total costs and expenses decreased 21.8% to $736.1 million from the year-ago quarter. McDermott plans to spend about $45 million to $60 million on restructuring its Atlantic operations, a move initiated last quarter. Accordingly, the company incurred $4 million as restructuring expense during the quarter and is likely to spend most of the remaining $35.5–$45.5 million in the following two quarters.
At the end of the third quarter, McDermott had a backlog of $4,610.7 million compared with $5,339.8 million a year ago.
Capital expenditure for McDermott during the quarter was $80.9 million. As of Sep 30, 2013, McDermott had cash and cash equivalents of $282.4 million and long-term debt (including current maturities) of approximately $94.4 million (representing a debt-to-capitalization ratio of approximately 5.1%).
Given its geographic footprint in high-growth regions, technology leadership and efficient execution skills, McDermott is poised to benefit from strong industry fundamentals for offshore construction activities through 2013 and beyond.
However, several factors, including steep operating costs, erratic earnings over the last few quarters and uncertainty regarding the timing of big awards will continue to weigh on the company’s results. As such, we expect its growth potential to be restrained.
Zacks Rank & Other Picks
McDermott currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next one to three months.
Meanwhile, one can consider other oil field machinery and equipment suppliers such as Profire Energy, Inc. (PFIE) which currently sports a Zacks Rank #1 (Strong Buy) or Natural Gas Services Group Inc. (NGS) and USA Compression Partners LP (USAC) that hold a Zacks Rank #2 (Buy).