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McDermott (MDR) Q1 Earnings Beat, Revenues Miss Estimates

Zacks Equity Research
Updated

Offshore oil and gas-focused engineering and construction firm McDermott International Inc. MDR reported earnings of 8 cents per share in first-quarter 2017, higher than the Zacks Consensus Estimate of 1 cent. The results were primarily driven by improvement in project executions which led to cost savings and better-than-expected closeouts. However, the bottom line deteriorated from the year-ago quarter’s earnings of 13 cents.

McDermott generated revenues of about $519.4 million in the quarter, lower than $729 million in the prior-year quarter. Further, the top line was below the Zacks Consensus Estimate of $666 million. The lower revenues are mainly attributed to the reduced activity on Ichthys LNG project.

Total Expenses

Total costs and expenses decreased 33.1% from $693 million in the year-ago quarter to about $463.4 million.

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Backlog

At the end of the first quarter, McDermott had a backlog of $3,898.3 million compared with $3,841.3 million a year ago. While 85% of the total backlog is related to offshore operations with Saudi Aramco work accounting for about 69% of backlog, the remaining 15% pertains to subsea operations.

Balance Sheet

Capital expenditure for McDermott was about $62.8 million during the quarter as compared to 31.9 in the year-ago quarter. Capex was mainly driven by the strategic acquisition of the pipelay and construction vessel Ceona Amazon, offset by cash received from sale leaseback arrangement.

As of Mar 31, 2017, the company had cash and cash equivalents of $623.5 million and long-term debt of approximately $720.2 million. The debt-to-capitalization ratio of the company is about 30.8%.

McDermott International, Inc. Price, Consensus and EPS Surprise

 

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

Updated 2017 Guidance

The projected net income figure increased from $80 million to $120 million. The increased guidance is driven by improved closeouts and better project executions in the first quarter.

Further, estimated free cash flow has also increased by 74%. The expected improvement in cash flow is driven by operating income improvements and strong working capital management. Amazon sale leaseback arrangement which offset the acquisition cost is reflected in the increased projected adjusted free cash flow for 2017.

Zacks Rank & Key Picks

Incorporated in 1959, Houston, TX-based McDermott is solely 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).

Better-ranked players in the broader industry include Penn Virginia Corporation PVAC, Bellatrix Exploration Ltd BXE and Cenovus Energy Inc. CVE. All the three companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Penn Virginia posted a positive average surprise of 36.67% in the last four quarters.

Bellatrix posted a positive average surprise of 58.54% in the last four quarters.

Cenovus posted a positive average surprise of 74.89% in the last four quarters.

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McDermott International, Inc. (MDR): Free Stock Analysis Report
 
Bellatrix Exploration Ltd (BXE): Free Stock Analysis Report
 
Cenovus Energy Inc (CVE): Free Stock Analysis Report
 
Penn Virginia Corporation (PVAC): Free Stock Analysis Report
 
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