Stocks took a breather Tuesday after recent gains, with the Dow Jones Industrial Average (^DJI 2.12%) and the S&P 500 (^GSPC 1.45%) posting small losses.
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Long-term interest rates rose sharply, hurting the rate-sensitive real estate sector; the iShares US Real Estate ETF (IYR 2.24%) fell 1.9%.
As for individual stocks, McDermott International (MDR) and Chicago Bridge & Iron (CBI) announced a merger that was poorly received by the market, and Navistar International (NAV) reported an excellent quarter.
McDermott and Chicago Bridge & Iron announce merger plans
Energy infrastructure companies McDermott International and Chicago Bridge & Iron announced a merger agreement yesterday, and investors responded by sending McDermott's and CB&I's shares down 11.9% and 10.7%, respectively. The $6 billion deal combines McDermott's offshore oil and gas production and pipeline construction business with CB&I's onshore energy infrastructure construction business.
The terms of the all-stock deal call for CB&I shareholders to receive 2.47 shares of McDermott stock for each share of CB&I, and will result in McDermott shareholders owning about 53% of the combined company. The merged businesses have combined 2017 revenue of $10 billion and a backlog of about $14.5 billion, and at the end of trading today, the market capitalization of the two companies together stood at $3.5 billion.
Investors in both companies clearly were not happy with the deal. The companies complement each other well, creating a vertically integrated construction business that can deliver fixed and floating offshore oil production facilities, as well as refining, liquid natural gas facilities, and gas-powered power plants. But terms of the deal were not particularly good for either group of shareholders. There was no premium over the market price for CB&I shareholders, and McDermott, which has put up some good results recently despite the challenges in the energy market, will end up with far more debt and a subsidiary that has been having growth struggles of its own.
Navistar rolls to a profit
Shares of truck maker Navistar International jumped 7.5% after the company reported fiscal fourth-quarter results that left Wall Street expectations in the dust. Revenue rose 26% to $2.6 billion compared with the analyst consensus of $2.3 billion, and earnings per share came in at $1.36, up from a per-share loss of $0.42 in the period last year and more than double analysts' estimate of $0.64 in EPS.
The results put Navistar in the black for the first time since 2011. For the full year, Navistar earned $0.32 per share after losing $1.19 in 2016. The company attributed its success to strong sales of new models of Class 8 trucks, fueling a share gain of 1.6 points in Q4 in an improving market for trucks. All segments of the company's business reported a profit, and Navistar provided guidance for 2018 revenue that was above analyst expectations.
Looking ahead, the company emphasized some upcoming benefits of its ongoing collaboration with Volkswagen. Chairman and CEO Troy A. Clarke said in the press release:
We think 2018 is shaping up to be one of the strongest industry years this decade, and we're positioned to make it a breakout year for Navistar. We'll drive even greater customer consideration with our commitment to uptime and our ongoing cadence of new product launches, which will include the introduction of our new medium-duty vehicle, as well as new IC Bus offerings. At the same time, we will build on our alliance with Volkswagen Truck & Bus by investing in and collaborating on the major technologies that are reshaping our industry, including electric, connectivity and autonomous.
Successful products, a return to profitability, and a positive outlook for next year were enough to keep Navistar stock rolling, now up 45% for the year.