Shares of McDermott International, Inc. MDR have plunged nearly 44% since earnings announcement on Nov 4. In fact, the stock price hit a new 52-week low of 93 cents in last Friday’s trading session. This extends the company’s downward trend on the bourse over the past year, during which the stock has shed 88.2% of value compared with the industry’s 31% decline.
Reasons for this downside were weaker-than-expected third-quarter results and other headwinds. Let’s delve deeper.
McDermott recently released third-quarter 2019 results, missing on both earnings and revenues. The oilfield equipment provider incurred adjusted loss per share of $1.80, significantly wider than the Zacks Consensus Estimate of 21 cents. However, in the year-ago quarter, the company reported earnings of 20 cents.
The lower-than-expected earnings reflect the impact of higher costs plus goodwill and asset impairments. Particularly, quarterly expenses surged to $2,173 million from the year-ago figure of $1,986 million.
Revenues of $2,121 million also lagged the Zacks Consensus Estimate of $2,367 million. Moreover, the top line fell 7.3% from the year-ago quarter.
Shares of McDermott plunged to new lows as work at its headquarters gets stalled following the company's alleged delay in payments to its general contractor.
McDermott boasts a ‘Revenue Opportunity Pipeline’ of $89.1 billion including Backlog, Bids & Change Orders Outstanding and Target Projects. As of Sep 30, its backlog was $20.1 billion, surging 74.78% year over year.
The company’s Bids & Change Orders Outstanding came in at $11.8 billion while Target Projects summed $57.2 billion. Its revenue pipeline is primarily boosted by North, Central & South America (‘NCSA’), and Middle East & North Africa (‘MENA’) segments, given a continued momentum in offshore/subsea, downstream and LNG markets.
Capital Expenditure & Balance Sheet
During the quarter, McDermott spent approximately $32 million on capital programs, higher than the year-ago figure of $19 million. As of Sep 30, the company had $677 million in cash and cash equivalents and total debt of $3,450 million.
McDermott International, Inc. Price, Consensus and EPS Surprise
McDermott International, Inc. price-consensus-eps-surprise-chart | McDermott International, Inc. Quote
Deals & Divestment Plan
In the reported quarter, McDermott inked a deal to secure a funding worth up to $1.7 billion from specific lenders. However, the company disappointed investors with the news of its withdrawal of 2019 outlook and high-debt costs.
At the same time, McDermott terminated the earlier-announced sale of its industrial storage tank business. While this created some uncertainty about the company’s future among investors, its high interest rate of roughly 10% on the new debt raised concerns over its elevated interest expense. However, this Houston-based company continues to mull over divesting its industry-leading Lummus Technology business after piquing prospective buyers’ curiosity.
Zacks Rank & Key Picks
McDermott currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the energy space are Murphy USA Inc. MUSA, Delek Logistics Partners, L.P. DKL and World Fuel Services Corporation INT, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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