The federal government has begun to tackle more problems in America's power grid and infrastructure, which looks like a boon for engineering and construction firm WashingtonGroup (Nasdaq: WGII).
Second-quarter results were a bit confusing, but not bad. Reported revenue rose 13% to more than $773 million, and new orders taken for the quarter came in at $820 million. A nearly $61 million pre-tax charge clobbered operating income for the quarter, but performance would have been quite good if the charge were added back.
Looking just at the top lines, all of the company's segments except infrastructure did pretty well. Large groups such as power, energy/environment, and defense all grew revenue at double-digit rates for the quarter. Segment operating income performance was more variable, though. Power and defense performed well, but mining, energy, and infrastructure (thanks to that charge) suffered.
Unfortunately, that income-sapping charge stems from the nature of Washington Group's business. Clients made changes to some road construction projects, and under its accounting standards, the company recognized those added expenses immediately. While a percentage of the loss will be recovered through change orders and claims settlements, the company won't recognize those benefits until later.
However, the new energy bill should encourage the building of additional power generation facilities, especially nuclear facilities. And the U.S. isn't the only country taking another look at nuclear power; management mentioned 104 proposed projects worldwide. Washington Group won't land all those contracts, but a consistent share of them could mean significant future revenue.
It seems the market has already built much of this expected business into Washington Group's share price. Nevertheless, the company is debt-free, has more than $11 per share in cash on the balance sheet, and recently authorized a $50 million share buyback program. The company is also booking more business, at higher margins, than in previous years.
Energy-related construction ideas like Washington Group and Chicago Bridge & Iron (NYSE: CBI) should enjoy good days ahead. With that in mind, there may still be room for the shares to grow.
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
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