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Chicago Bridge & Iron's (CBI) Q3 Earnings & Revenues Miss

Chicago Bridge & Iron Company N.V. CBI followed last quarter’s colossal earnings miss with fourth consecutive miss in third-quarter 2017. The company reported adjusted earnings of 34 cents per share, massively lagging the Zacks Consensus Estimate of 53 cents.

The bottom line fared even worse in year-over-year comparison, having plunged 91.7% from the year-ago earnings figure of $1.20. Profits were badly hurt due to higher restructuring charges, high cost on IPL and Calpine power projects as well as with execution of its other projects.

Inside the Headlines

The company reported quarterly revenues of $1,738 million from continuing operations, missing the Zacks Consensus Estimate of $1,809 million. Further, revenues declined 18.7% year over year. The lackluster top-line performance during the quarter was largely a result of revenue declines across both segments of the company.

Meanwhile, the company’s revenues from its discontinued operations (The Technology operations) came at $170.1 million, compared with $183.3 million in the prior-year quarter.

Third-quarter gross profit plummeted 59.1% year over year to $82.8 million, while gross margin contracted a substantial 530 basis points to 4.8%. Net income for the quarter came in at $10 million, compared with $121.8 million in the year ago quarter.

The company booked new awards worth $437 million during the quarter compared with $1.7 billion in the prior-year quarter. The decline in new awards was due to lower-than-expected new award wins within Engineering & Construction Operating Group (E&C), due to the delay of certain key projects.

Segmental Revenue

Revenues from the Engineering and Construction segment came in at $1,348 million, down 19.3% on a year-over-year basis. The decline is primarily attributable to changes in estimated margins on two U.S. gas turbine power projects as well as additional costs on U.S. LNG projects. New awards in this segment were $65.2 million in the quarter, reflecting a huge decline compared with its value of $1.5 billion in the year ago quarter.

Fabrication Services quarterly revenues totaled $389.7 million, falling 16.6% year over year. New awards received by this segment rose (up 72.7%) to $371.8 million at the end of the third quarter compared with $215.3 million in the prior-year quarter.

Liquidity

Chicago Bridge & Iron’s cash and cash equivalents as of Sep 30, 2017 came in at $341.9 million compared with $615 million a year ago. Net cash used in operating activities in the quarter came in at $688 million, a turnaround from the net cash generated from operating activities of $495 million in the comparable period last year.

Major Developments

During the quarter, the company decided to sell its Technology business, which it believes would add significant value for stakeholders. The company plans to complete the transaction by the end of this year. It also intends to use the proceeds to reduce total debt and reinvest in its Engineering and Construction, and Fabrication Services businesses.

Guidance

Chicago Bridge & Iron currently expects to generate revenues in the range of $1.8-$2 billion for fourth-quarter 2017. The company also expects earnings to be in the range of 50-60 cents per share.

Existing Business Scenario

Over the past few quarters, decreased activity on large cost reimbursable LNG projects in Asia Pacific region, the winding down of several E&C projects and the timing of progress on projects in Fabrication Services group have dragged revenues for the company. The headwinds may continue to hurt Chicago Bridge & Iron’s operations going forward as well. The winding-down of the company’s cost-reimbursable LNG project in the Asia-Pacific region is also impacting its prospects.

Being a multinational company, Chicago Bridge & Iron remains exposed to risks arising from uncertainties in macroeconomic conditions. Factors including unstable economic conditions in key end-markets, decreased liquidity and lack of well-developed legal systems in certain end-markets in key operating regions can adversely impact the company’s financials, going forward.

Chicago Bridge & Iron currently carries a Zacks Rank #5 (Strong Sell).

Stocks to Consider

Some better-ranked stocks worth considering in the same space include Louisiana-Pacific Corporation LPX, Jacobs Engineering Group Inc. JEC and Owens Corning Inc OC. While Louisiana-Pacific Corporation sports a Zacks Rank #1 (Strong Buy), Jacobs Engineering Group and Owens Corning carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Louisiana-Pacific Corporation has a decent earnings surprise history, surpassing estimates twice in the trailing four quarters with an average beat of 1.2%.

Jacobs Engineering Group has an impressive earnings surprise history, exceeding estimates thrice in the trailing four quarters with an average beat of 4.8%.

Owens Corning has an impressive earnings surprise history, exceeding estimates thrice in the trailing four quarters with an average beat of 17.5%.

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