Chicago Bridge & Iron (CBI) Incurs Q2 Loss On Lower Revenues

Chicago Bridge & Iron Company N.V. (NYSE:CBI) reported its third consecutive miss in second-quarter 2017, in fact an even bigger one than the last quarter. Chicago Bridge & Iron reported a adjusted loss of $3.02 per share in stark contrast to the year-ago earnings of $1.09.

The deterioration was primarily attributable to high operating expenses, high interest expense and fall in revenues.

Inside the Headlines

The company reported quarterly revenues of $1,283 million, missing the Zacks Consensus Estimate of $2,440 million. Further, revenues descended 40.9% year over year. The lackluster top-line performance during the quarter was largely a result of revenue declines across all segments of the company.

Second-quarter gross loss came in at $378.1 million. Margins were deeply affected by a rise in cost in two gas turbine projects and two LNG export facility projects.

Operating loss from continuing operations for the quarter came in at $446.6 million, compared to income of $183.2 million in the year ago quarter.

The company booked new awards worth $1.1 billion during the quarter compared with $1.3 billion in the prior-year quarter. At the end of the reported quarter, the company had a total backlog of $13.6 billion, down 7.5%.

Chicago Bridge & Iron Company N.V. Price, Consensus and EPS Surprise

Chicago Bridge & Iron Company N.V. Price, Consensus and EPS Surprise | Chicago Bridge & Iron Company N.V. Quote

Segmental Revenues

Revenues from the Engineering and Construction segment came in at $702.2 million, down 54.7% on a year-over-year basis, mainly due to the shut-down of a huge cost-reimbursable LNG mechanical erection project in the Asia-Pacific region as well as lower revenues from two U.S. LNG projects. New awards in this segment were $398.4 million, and backlog came in at $10.4 billion.

Fabrication Servicesquarterly revenues totaled $508.5 million, falling 7.2% year over year. New awards received by this segment more than doubled to $521.4 million at the end of the second quarter from the prior-year quarter. The segment had total backlog of $2 billionas of Jun 30, 2017.

Technologyrevenues were up 12.9% year over year to $72.8 million on the back of due to increased petrochemical licensing. Additionally, this segment won $148.5 million of new contracts in the quarter, reflecting a surge of nearly 38% year over year. The segment reported backlog of $1.2 billion.

Liquidity

Chicago Bridge & Iron’s cash and cash equivalents as of Jun 30, 2017 came in at $354.9 million compared with $586.3 million in the year-ago quarter. Net cash used in operating activities in the quarter came in at $466.1 million, reflecting a turnaround from net cash generated from operating activities of $319.3 million in the comparable period last year. Total debt was $1.8 billion at quarter end compared with $2.4 billion at the end of the first quarter.

Major Developments

During the quarter, the company closed the sale of its Capital Services business to an affiliate of the private equity investment firm Veritas Capital for a $700 million price. The sale is part of the company’s efforts to realign the business with its long-term strategy and realize cost synergies. The divestiture generated significant cash proceeds, which were used to reduce total debt to $1.8 billion at the end of the reported quarter.

The company has decided to sell its Technology business, which it believes would add significant value for its stakeholders. The company plans to use the proceeds to reduce its total debt and reinvest in its Engineering and Construction, and Fabrication Services businesses.

Guidance

Chicago Bridge & Iron revised its revenue guidance for the second half of 2017. The company expects to generate revenues in the range of $3.7–$4 billion. However, earnings for the second half of the year are now anticipated in the band of $1–$1.25 per share.

Our Take

Decreased activity on large cost reimbursable LNG projects in the Asia Pacific region, the winding down of several E&C projects and the timing of progress on projects in Fabrication Services group dragged revenues down in the first quarter. Persistence of these issues may pose serious threats to the company’s top-line growth. Further, Chicago Bridge & Iron’s business is highly vulnerable to the prevalent volatility in oil prices as it can lead to reduced capital spending, which in turn may affect its projects and orders.

Additionally, if prices drop too low, some of the oil-producing companies may go out of business. This can leave a significant negative impact on the company for the coming quarters, given its presence in the natural gas and petrochemical markets, including those for upgrading refineries. Chicago Bridge & Iron is currently facing headwinds from a decline in federal government spending trends, which can intensify going forward.

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

Stocks to Consider

Some better-ranked stocks in the broader sector are Beazer Homes USA, Inc. (NYSE:BZH) , EMCOR Group, Inc. (NYSE:EME) and KB Home (NYSE:KBH) . While KB Home sports a Zacks Rank #1 (Strong Buy), Beazer Homes USA and EMCOR Group carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Beazer Homes USA managed to beat earnings twice over the trailing four quarters. It has an impressive positive average surprise of 103.47%.

EMCOR Group has a modest earnings beat history, having surpassed estimates thrice over the trailing four quarters. It has a positive average surprise of 11.69%.

KB Home has a positive average earnings surprise of 12.47% for the last four quarters, having surpassed estimates all through.

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