Shaw Group (NYSE: SHAW ) , the engineering, construction and technical-services provider, reported a third-quarter net loss of $70 million that surprised the Street, mostly thanks to impairments and cost escalations. This was a complete turnaround from a profit of $68.2 million in the year-ago period. Shares closed off 7% on the news. Do these numbers spell a problem for the company, or is there some promise left?
The numbers
Shaw's revenues for the quarter fell 17% to $1.5 billion. The Energy & Chemicals segment's revenue accounted for the negative earnings, plunging 65% as subcontractor issues resulted in a charge of $112.8 million during the quarter. A loan-related accounting impairment of $48.1 million also ate into Shaw's earnings, though the company expects to recover a part of this charge.
These two charges, which total $1.25 per share, led to a loss of $0.89 per share, compared with an EPS of $0.79 in the year-ago quarter.
The unfilled-orders backlog, which indicates future potential revenues, was marginally lower at $19.7 million, compared with $20.3 million in the year-ago quarter. The new awards Shaw received were mostly in the Plant Services and the Environmental & Infrastructure segment. Plant Services performed well, but the E&I segment suffered a dip in margins. Rival URS (NYSE: URS ) , meanwhile, reported increasing revenues and margins in its last quarter for the same segment.
Cash flow from operations rose to $51.2 million from $34.1 million a year ago. But $51.7 million worth of asset writedowns contributed to the positive cash flows.
The good news is that Shaw doesn't face any cash crunch. Total cash stands at $1.7 billion, and Shaw has no long-term debt on its books. It has also planned an additional $500 million worth of share repurchases.
The nuclear view
It was overall a tough quarter, but new deals are pouring in. The company recently won a $500 million contract for Entergy's (NYSE: ETR ) natural-gas plant. Things look good for the Plant Services division, too, after winning a three-year contract to maintain five nuclear power plants for Florida Power & Light. With this addition, Shaw now provides service maintenance to almost 40% of U.S. nuclear units.
Though nuclear-energy accounts constitute nearly half of Shaw's total backlog, I don't smell many problems here. Shaw expects two of its new nuclear-power projects to receive operating licenses from the U.S. Nuclear Regulatory Commission in early 2012. Construction of new plants seems to be under way in the U.S. as well, after a long 30-year gap. That's definitely good news for Shaw.
The Foolish bottom line
Shaw's fourth-quarter EPS guidance of $0.60 and fiscal 2012 guidance of $2.20 to $2.50 per share are well below Street estimates. The weak numbers further add to my cautious view in the near term. However, good prospects and financials could provide a reason to keep a watch on the stock in the long run.
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