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CB&I Announces Second Quarter 2017 Results

Unless otherwise indicated, results reported are for continuing operations, which consist of CB&I's Engineering & Construction (E&C), Fabrication Services and Technology businesses. The results of our former Capital Services business have been classified as a discontinued operation for all periods presented. CB&I also announced in a separate news release today that it is initiating the process to sell its Technology business.

Revenue was $1.3 billion in the second quarter of 2017, compared to revenue of $2.2 billion in the second quarter of 2016. CB&I reported a net loss of $304.1 million, or $3.02 per diluted share, in the second quarter of 2017, compared to net income of $115.6 million, or $1.09 per diluted share, in the second quarter of 2016.

New awards in the second quarter of 2017 totaled $1.1 billion, compared to $1.3 billion in the second quarter of last year. Backlog at June 30, 2017, was $13.6 billion, compared to backlog of $14.7 billion at June 30, 2016.

"Although our second quarter results are disappointing, we are taking decisive actions to improve our operating performance and strengthen the company's financial position," said Patrick K. Mullen, President and Chief Executive Officer of CB&I. "We have initiated a comprehensive cost reduction program and suspended our dividend. We are injecting additional rigor and discipline into our execution and risk management processes, further strengthening the integration between our E&C and Fabrication Services operating groups, and accelerating the implementation of innovative practices and technologies. We remain committed to our integrated self-perform model, which we believe will enable us to generate attractive earnings and cash flows over time.

"Additionally, we announced today that we are pursuing a sale of our Technology business, which we believe will unlock significant value for stakeholders. We plan to use the proceeds from the sale to significantly enhance CB&I's financial strength and flexibility by eliminating the majority of our debt and reinvesting in our E&C and Fabrication Services businesses. We envision a bright future for CB&I as a highly focused company with tightly integrated EPC and fabrication capabilities serving the LNG, petrochemical, refining and gas power generation markets."

E&C Operating Group
E&C operating group revenue was $702.2 million in the second quarter of 2017, compared to $1.5 billion in the year-ago quarter, due to the wind-down of a large cost-reimbursable LNG mechanical erection project in the Asia-Pacific region and lower revenue on two U.S. LNG projects. The E&C group reported an operating loss of $525.7 million due to forecasted increases in costs on four fixed-price contracts amounting to $548.0 million, as well as an additional $50 million from the current-quarter impact of a lower margin percentage recognized on work performed during the period on the projects. The projects that incurred these cost increases were two gas turbine projects and two LNG export facility projects, all of which are being executed in the U.S. The E&C group's new awards in the second quarter totaled $398.4 million, and backlog as of June 30, 2017, was $10.4 billion.

Fabrication Services Operating Group
Fabrication Services operating group revenue was $508.5 million compared to $547.7 million in the year-ago quarter. The Fabrication Services group reported operating income of $57.6 million compared to $67.4 million in the second quarter of 2016, which had benefited from $11 million in net savings on project costs. Operating income margin was 11.3 percent, compared to 12.3 percent in the year-ago quarter. The Fabrication Services group's new awards in the second quarter were $521.4 million, more than double the new award level in the second quarter of 2016. Backlog as of June 30, 2017, was $2.0 billion.

Technology Operating Group
Technology operating group revenue was $72.8 million, an increase of 13 percent from the year-ago quarter due to increased petrochemical licensing. The Technology group reported operating income of $21.5 million compared to $23.1 million in second quarter of 2016. Operating income margin was 29.5 percent, down from 35.7 percent in the year-ago quarter, due largely to mix. The Technology group's new awards in the second quarter were $148.5 million, up 38 percent from the year-ago quarter. Backlog as of June 30, 2017, was $1.2 billion.

Corporate and Other
The company also announced today that it is initiating a comprehensive corporate and operating expense reduction program expected to generate cost savings of approximately $100 million on an annualized basis.

CB&I's Supervisory Board has elected to suspend the company's quarterly common stock dividend effective immediately. The suspension of the dividend is expected to result in annual cash savings of $28 million to $30 million.

The company reported a use of cash from operations in the second quarter of 2017 of approximately $157 million, driven primarily by the net loss partially offset by an increase in our contract capital liability position.

Using the cash proceeds...


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