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McDermott (MDR) Reports Q1 Earnings Miss, Backlog Hits $15B

Nilanjan Choudhury

McDermott International, Inc. MDR reported adjusted earnings per share of 2 cents, missing the Zacks Consensus Estimate of 9 cents and significantly below the year-ago profit of 52 cents. The weaker-than-expected bottom line reflects the impact of higher costs. In particular, quarterly expenses surged more than four-fold year over year to $2.2 billion.

Revenues of $2.2 billion were marginally ahead of the Zacks Consensus Estimate and surged 263.6% from the year-ago quarter on strong market share and encouraging sector dynamics.

On a further positive note, McDermott said that it clinched $6.7 billion in new awards during the first quarter, ahead of the Zacks Consensus Estimate of $4.8 billion. Further, the energy equipment supplier saw its backlog increase 41% sequentially to $15.4 billion.

McDermott International, Inc. Price, Consensus and EPS Surprise


McDermott International, Inc. Price, Consensus and EPS Surprise | McDermott International, Inc. Quote

Revenue Pipeline

McDermott’s boasts of a ‘Revenue Opportunity Pipeline’ of around $91 billion, which, according to the company, includes Backlog, Bids & Change Orders Outstanding, and Target Projects. As of Mar 31, McDermott had a backlog of $15.4 billion (ahead of the Zacks Consensus Estimate of . It had $17.7 billion in Bids & Change Orders Outstanding and $58 billion in Target Projects. The company’s revenue pipeline is primarily driven by North, Central & South America (‘NCSA’), as well as Middle East & North Africa (‘MENA’) segments with new orders in the offshore/subsea, downstream and LNG markets.

Capital Expenditure & Balance Sheet

During the quarter, McDermott spent approximately $18 million on capital programs – same as last year. As of Mar 31, 2019, the company had $413 million in cash and cash equivalents and $714 million available under revolving credit facility. The company’s long-term debt totaled roughly $3.4 billion, reflecting a debt-to-capitalization ratio of 83.4%.

Guidance & Outlook

McDermott expects cash flow deficit of around $310 million in 2019 following the deferral of a mega petrochemical project and its advance payment into 2020. Taking into consideration the expected capital budget of around $160 million, negative free cash flow for this year is likely to be about $470 million.

At the same time, the company expects its operating performance to improve in the second half of this year on higher utilization, merger cost synergies and the implementation of recent bookings.

McDermott, which informed about the completion the final offshore campaign for the Ichthys LNG project, located offshore Western Australia, sees 2019 revenues at around $10 billion.

Zacks Rank & Key Picks

McDermott International holds a Zacks Rank #2 (Buy).

Apart from McDermott, investors interested in the the energy space could look at some other options like ProPetro Holding Corp. PUMP, Parsley Energy PE and TransCanada Corporation TRP that also sport a Zacks Rank #2.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The 2019 Zacks Consensus Estimate for Midland, TX-based ProPetro is $2.42, representing some 21% earnings per share growth over 2018. Next year’s average forecast is $2.70 pointing to another 11.5% growth.

TransCanada has a 100% track of outperforming estimates over the last four quarters at an average rate of 19%.

The 2019 Zacks Consensus Estimate for Austin, TX-based Parsley is $1,53, representing some 8.5% earnings per share growth over 2018. Next year’s average forecast is $2.47 pointing to another 61.8% growth.

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