Chicago Bridge & Iron (CBI) Down 10.2% Since Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Chicago Bridge & Iron Company N.V. CBI. Shares have lost about 10.2% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is CBI due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Chicago Bridge & Iron Q4 Earnings & Revenues Fall Y/Y

Chicago Bridge & Iron reported fourth-quarter 2017 adjusted earnings of 48 cents per share, beating the Zacks Consensus Estimate by a penny. However, the metric slumped 43.5% on a year-over-year basis due to the decline in revenues and effect of high non-operating charges that trickled down to the bottom line.

In full-year 2017, the company incurred a net loss of $1.5 billion or $14.44 per share.

Inside the Headlines

Chicago Bridge & Iron posted fourth-quarter 2017 revenues of $1,693.6 million, missing the Zacks Consensus Estimate of $1,775 million. The top line also plunged 33.3% year over year. This lackluster performance was largely as a result of revenue declines across most of the company’s segments.

In the full year, revenues were down 22.1% year over year to $6.7 billion. The decline can be primarily attributable to decrease in revenues at the Engineering & Construction and the Fabrication Services segments. Backlog for the company came in at $11.4 billion at the end of 2017 compared with $13 billion at the end of 2016.

Fourth-quarter gross profit rose 9.3% year over year to $84.7 million while gross margin expanded by 120 basis points to 5%. The improvement in margins was driven by a steep decline in cost of revenues year over year.

Moreover, the company booked new awards worth $1,284.8 million in the quarter compared with $932.6 million in the prior-year quarter. New awards for 2017 came in at $5.8 billion, reflecting an increase of 17% year over year, thereby reflecting the company’s strong competitive position in refining and petrochemical markets.

Segmental Revenues

The company’s revenues from its Engineering & Construction segment came at $1,224.4 million, down 11.1% from the prior-year quarter. New awards in this segment totaled $754.3 million in the quarter under review, reflecting a massive increase compared with its value of $334.3 million in the year-ago quarter.

Fabrication Services quarterly revenues totaled $372.6 million, down 36% year over year. New awards received by this segment decreased to $399.8 million at the end of the third quarter compared with $429.6 million in the prior-year quarter.

Meanwhile, revenues from the Technology segment surged 48.8% and came in at $96.6 million.

Liquidity

Chicago Bridge & Iron’s cash and cash equivalents as of Dec 31, 2017 came in at $354.6 million compared with $490.7 million a year ago. Net cash used in operating activities in the quarter came in at $909.4 million, a turnaround from the net cash generated from operating activities of $654.5 million in the comparable period last year.

Major Developments

In December 2017, Chicago Bridge & Iron and McDermott agreed to merge in an all-stock deal worth about $6 billion, thus creating an extensive engineering, procurement, construction and installation company. The combined company will be completely vertically integrated and is likely to offer end-to-end engineering, procurement, construction and installation services to the onshore and offshore energy sectors. The agreement is expected to close in the second quarter of 2018.

Per the contract, McDermott’s shareholders will own 53% of the combined entity while the remaining stake will be owned by Chicago Bridge & Iron’s shareholders. Notably, the deal is expected to be cash-accretive (excluding one-time costs) within the first year after its closure. In 2019, both the companies are expected to generate annualized cost synergies of $250 million and sizeable revenue synergies in addition to Chicago Bridge & Iron’s $100 million cost-reduction program.

Furthermore, in December last year, the company decided not to proceed with the sale of its Technology business, reclassifying the business under continuing operations in the reported quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There has been one revision higher for the current quarter compared to one lower. In the past month, the consensus estimate has shifted by 6.9% due to these changes.

Chicago Bridge & Iron Company N.V. Price and Consensus

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

VGM Scores

At this time, CBI has a subpar Growth Score of D, however its Momentum is doing a lot better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and momentum investors.

Outlook

CBI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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