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McDermott (MDR) Q3 Earnings Gain on Strong Project Execution

McDermott International Inc. MDR reported earnings of 33 cents per share in third-quarter 2017, surpassing the Zacks Consensus Estimate of 19 cents. The better-than-expected results are mainly attributed to strong project execution and increased marine and fabrication activities. Further, the bottom line also improved from the year-ago quarter’s earnings of 9 cents. Key projects which strengthened the earnings in the quarter include Saudi Aramco LTA II Lump Sum, Saudi Aramco Marjan power system replacement and Inpex Ichthys.

McDermott generated revenues of about $958.5 million in the quarter, 71.6% higher than the prior-year quarter figure of $558.5 million. Increased activity in the Middle East drove revenues. However, the top line lagged the Zacks Consensus Estimate of $974 million.

McDermott International, Inc. Price, Consensus and EPS Surprise


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


Total Expenses

Total costs and expenses increased about 61.3% from $515.9 million in the year-ago quarter to about $831.5 million. Increased costs are primarily attributed to higher cost of operations which rose 70% to stand at $773.9 million in the quarter under revenue.


As of Sep 30, McDermott had a backlog of $2.4 billion compared with $3.9 billion a year ago. While 85% of the total backlog is related to offshore operations, the remaining 15% pertains to subsea operations.

Balance Sheet

Capital expenditure for McDermott was about $16.2 million during the quarter as compared with $26.7 million in the year-ago quarter.  Maintenance and project capex accounted for 75% of the total capital expenditure incurred in the quarter.

As of Sep 30, 2017, the company had cash and cash equivalents of $416.4 million and long-term debt of approximately $521.6 million. The debt-to-capitalization ratio of the company is about 22.9%.

Updated 2017 Guidance

Driven by the strong performance in the third quarter, the company has updated the guidance provided in the second quarter. McDermott expects full-year revenues to be approximately $3 billion. The company expects now EBITDA to be $395 million compared with the prior guidance of $365 million. Net income is now anticipated to be approximately $150 million, up 25% from the prior guidance.

The company now expects adjusted free cash flow to be $52 million, up from the $17 million prior guidance, to reflect the impact of the sale-leaseback agreement on its construction vessel Amazon. Net debt is now estimated to be approximately $190 million at the end of the year as compared with the prior guidance of $235 million.

Zacks Rank & Key Picks

Houston, TX-based McDermott is focused on the offshore oil and gas business. The company also provides project management and procurement services. It operates in most of the major offshore oil and gas producing regions under three main reporting segments: Asia Pacific, Americas and Middle East. The company currently carries a Zacks Rank #3 (Hold).

Some better-ranked players in the energy space are ConocoPhillips COP, Hess Corporation HES and Keane Group, Inc. FRAC. While ConocoPhillips sports a Zacks Rank #1 (Strong Buy), Hess and Keane carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

ConocoPhillips delivered average positive earnings surprise of 152.34% in the preceding four quarters.

Keane posted average positive earnings surprise of 27.47% in the trailing four quarters.

Hess reported average positive earnings surprise of 3.91% in the preceding four quarters.

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