CB&I Rebuilding Credibility

CB&I (NYSE: CBI  ) , also known as Chicago Bridge & Iron, has a little more on its plate these days than just building the LNG (liquefied natural gas) terminals and storage tanks in which it specializes. With recent accounting problems and the departure of its CEO, CFO, and COO fresh in investors' minds, rebuilding credibility and investor confidence will be just as important.

Though first-quarter results weren't entirely a great start, the good news outweighed the bad. Revenue rose 35% in the quarter, with results boosted by work on LNG projects in the U.K. helping significantly. The company also boosted its backlog from the end of fiscal 2005; it currently stands at about $3.4 billion, more than a year's worth of revenue at current run rates.

The gross margin fared worse, falling more than a full point. Operating income also dropped 20%, partly because of the costs associated with stock compensation and the investigation of the accounting troubles. Order levels were also lower this quarter, as new business fell 38%. It should be noted, though, that this tends to be a somewhat lumpy metric; the timing of large orders can make comparisons look really good or really bad from one quarter to the next.

Accounting irregularities are generally a valid reason to steer clear of companies, but I think CB&I has done a noteworthy job of quickly cleaning house. I couldn't comment on the impact it had on rank-and-file employees, but I'd consider the departure of three major executives a significant reaction to the problem.

A strong underlying market will also help heal the wounds a little faster. After all, while CB&I is a bit more specialized than average, plenty of large engineering and construction firms like Fluor (NYSE: FLR  ) and Washington Group (Nasdaq: WGII  ) are reporting encouraging order outlooks. So as long as companies like ExxonMobil (NYSE: XOM  ) or BP (NYSE: BP  ) need new infrastructure, and the cash flow to fund it, CB&I should be in decent shape -- provided the company can keep its margins in order.

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Fool contributor Stephen Simpson but has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).


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