FWLT (MM)

Foster Wheeler AG (FWLT) reported third-quarter 2011 earnings per share from continuing operations of 33 cents compared with 40 cents in the prior-year quarter. The company underperformed the Zacks Consensus Estimate of 44 cents.

Including asbestos related provision of 2 cents, earnings per share in the quarter came in at 31 cents compared with 41 cents (asbestos-related gain of 1 cent) in the prior-year quarter. Net income in the quarter decreased year over year as a result of low EBITDA margins in the company’s two business groups.

Total Revenue

Consolidated operating revenue in the quarter was $1.13 billion compared with $904.7 million in the prior-year period.

Segment Result

Global Engineering and Construction (E&C) Group’s operating revenue was $417.8 million compared with $380.6 million in the prior-year period. In the reported quarter, orders were generally of small and medium sizes, therefore orders booked during the period declined to $309.2 million from $357.1 million.

Global Power Group (GPG) operating revenue decreased to $247.4 million from $249.0 million in the prior-year period as volume of boiler work increased. New order in the segment decreased to $76.6 million compared with $263.8 million in the prior-year period.

The company was not able to secure orders for boilers during the quarter, thus resulting in decline in new orders to $76.6 million compared with $263.8 million in the prior-year period.

Income & Expenses

Contract profit in the quarter was $136.1 million compared with $139.9 million in the prior-year quarter. SG&A expense was $75.1 million compared with $73.6 million.

E&C EBTDA was $58.1 million in the quarter compared with $69.3 million in the prior-year quarter and GPG EBITDA was $35.3 million compared with $40.4 million in the year-ago comparable period.

Balance Sheet

Cash and cash equivalents at the end of the quarter were $961.7 million compared with $1.06 million at the end of 2010. Long-term debt was $145.1 million compared with $152.6 million and shareholders’ equity was $945.5 million compared with $1.02 billion at the end of 2010.

During the third quarter of 2011, the company repurchased 3,526,194 shares for approximately $80 million. The company had $261 million remaining under its authorized share repurchase program as of September 30, 2011.

Outlook

The company expects Global E&C Group scope revenue to continue to increase quarterly but remain flat for full-year 2011 compared with 2010. Backlog at the end of 2011 is expected to be more than 2010. For 2011, the segment EBITDA margin is expected to be in the range of 13%–15%.

Global Power Group scope revenue is expected to be up significantly in 2011 versus 2010.  The segment EBITDA margin on scope revenue in 2011 increased to a range of 17%–19%.

Foster Wheeler AG is based in Zug Switzerland, but its operational headquarters are in Clinton NJ USA. The majority of Foster’s revenues and new businesses originate from outside the United States.  The company serves the following industries: Oil and Gas; Oil Refining; Chemical & Petrochemical; Pharmaceutical; Environmental; Power Generation; and Power Plant Operation and Maintenance. Major competitors of Foster Wheeler are Fluor Corporation (FLR) and Jacobs Engineering Group Inc. (JEC).

We continue to maintain a Neutral rating on Foster Wheeler, with a Zacks #3 Rank (Hold recommendation) over the next one-to-three months.

 
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