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McDermott (MDR) Slips to Q2 Loss, Lags on Sales, Cuts View

Zacks Equity Research

McDermott International, Inc. MDR recently released second-quarter 2019 results, missing estimates on both counts. Following the dismal results, shares of the firm plummeted 35% yesterday, to close the trading session at $6.52. The oilfield equipment provider reported adjusted loss per share of 7 cents, in stark contrast with the Zacks Consensus Estimate of earnings of 8 cents. The bottom line also compared much unfavorably with the year-ago earnings of 29 cents.   

The weaker-than-expected earnings reflect the impact of higher costs. In particular, quarterly expenses surged to $1,949 million from the year-ago figure of $1,486 million.

Revenues of $2,137 million also lagged the Zacks Consensus Estimate of $2,271 million. Nonetheless, the top line grew 23.2% from the year-ago quarter.

McDermott International, Inc. Price, Consensus and EPS Surprise

McDermott International, Inc. Price, Consensus and EPS Surprise

McDermott International, Inc. price-consensus-eps-surprise-chart | McDermott International, Inc. Quote

Revenue Pipeline

McDermott boasts a ‘Revenue Opportunity Pipeline’ of around $90.2 billion, which includes Backlog, Bids & Change Orders Outstanding, and Target Projects, according to the company. As of Jun 30, it had a backlog of $20.5 billion, outpacing the Zacks Consensus Estimate of $17.1 billion. The backlog reflects 33.1% and 100.9% increase on a sequential and year-over-year basis, respectively.

The company had $15.6 billion in Bids & Change Orders Outstanding and $54.1 billion in Target Projects. Its revenue pipeline is primarily driven by North, Central & South America (‘NCSA’), Europe, Africa, Russia & Caspian (“EARC”) as well as Middle East & North Africa (‘MENA’) segments, given continued momentum in offshore/subsea, downstream and LNG markets.

Capital Expenditure & Balance Sheet

During the quarter, McDermott spent approximately $15 million on capital programs, lower than the year-ago figure of $24 million. As of Jun 30, the company had $455 million in cash and $568 million available under the revolving credit facility. Long-term debt totaled $3,388 million, representing a leverage ratio of 86.3%.

Guidance

Following the weaker-than-expected results in the second quarter, McDermott trimmed its full-year guidance for 2019, taking into account reduced revenues, higher costs, scheduling issues, and a shift in the expected timing of incentives on the Cameron project from the fourth quarter of 2019 to 2020.

As such, revenues are now forecasted to total $9.5 billion versus the previous forecast of $10 billion. Estimates for adjusted operating income are reduced from $800 million to $470 million. As such, guidance for EBITDA, net income and EPS has also been cut. McDermott expects 2019 negative free cash flow to be about $640 million, wider than the prior forecast of $470 million. The company now expects full-year adjusted loss of 32 cents a share.

Zacks Rank & Key Picks

Currently, McDermott has a Zacks Rank #3 (Hold). Meanwhile, some better-ranked players from the same space are TC PipeLines, LP TCP, MPLX LP MPLX and Oasis Midstream Partners LP OMP, each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.   

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