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Chicago Bridge & Iron (CBI) Q1 Earnings Trump Estimates

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Offshore Industry Gets Respite from Shell's New GoM Find

Shell (RDS.A) expects its global deepwater production to overshoot 900,000 barrels of oil equivalent per day by 2020.

Chicago Bridge & Iron Company N.V. CBI reported first-quarter 2018 adjusted earnings of 43 cents per share, beating the Zacks Consensus Estimate of 40 cents by 7.5%. Also, the metric jumped a whopping 79.2% on a year-over-year basis due to successful cost-reduction initiatives and strong operational execution.

Inside the Headlines

Chicago Bridge & Iron posted quarterly revenues of $1,745.6 million, missing the Zacks Consensus Estimate of $1,781.2 million. The top line also declined 4.5% year over year. This lackluster performance was largely a result of revenue declines across two of the company’s segments.

Gross profit rose 14.7% year over year to $173.1 million, while gross margin expanded 170 basis points (bps) to 9.9%. The improvement in margins was driven by a steep year-over-year decline in cost of revenues.

Operating income increased 36% year over year to $107.7 million, driven by improved performance in the Engineering & Construction segment and cost-reduction efforts. Operating margins expanded 190 bps to 6.2%.

The company booked new awards worth $1,133.4 million in the quarter compared with $2,796.1 million in the prior-year quarter. The company stated that the year-over-year decline was caused by the timing of the new award activity.

 

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

Segmental Revenues

The company’s revenues from its Engineering & Construction segment came at $1,365.4 million, up 6.6% from the prior-year quarter’s figure, owing to increased activity on various projects in the U.S. New awards in this segment totaled $664.9 million in the quarter under review, reflecting a sharp decline compared with its value of $2,236.2 million in the year-ago quarter. This was largely due to the timing of the new award activity.

Fabrication Services quarterly revenues totaled $262.7 million, down 37.9% year over year. New awards received by this segment amounted to $310.9 million at the end of the first quarter, compared with $339.1 million in the year-ago quarter.

Meanwhile, revenues from the Technology segment fell 5.1% and came in at $117.6 million.

Liquidity

Chicago Bridge & Iron’s cash and cash equivalents at quarter end came in at $305.2 million compared with $420.1 million in the year-ago quarter. Net cash used in operating activities in the quarter came in at $240.3 million, lower than $290.7 million recorded 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.

Notably, the deal is expected to be cash-accretive (excluding one-time costs) within the first year after its closure. In 2019, 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.

McDermott primarily focuses on offshore operations, while Chicago Bridge & Iron's strength is in onshore projects. The deal will integrate two highly complementary businesses and create a leading onshore-offshore EPCI (engineering, procurement, construction and installation) company, with immense scale and diversity to capitalize on global opportunities.

 The deal is on track to conclude in May 2018.

To Conclude

Chicago Bridge & Iron projects multiple opportunities in its key end markets including the United States, East Africa and the Middle East. For the United States 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 as well as personnel-related reductions, is estimated to generate savings of about $100 million annually.

However, the Zacks Rank #4 (Sell) company’s margins remain vulnerable to increasing costs on IPL and Calpine power projects and execution of its other projects.

Stocks to Consider

A few better-ranked stocks in the same space include Potlatch Corporation PCH and Jacobs Engineering Group Inc. JEC, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) 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 each time in the trailing four quarters, with an average beat of 11.4%.

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