What happened
Shares of McDermott International (MDR) fell more than 35% on Tuesday, after the engineering and construction services firm reported second-quarter results that came in well below expectations and said it expected a full-year loss. Analysts had previously expected the company to be profitable in 2019.
So what
Ater markets closed Monday, McDermott reported a second-quarter adjusted loss of $0.07 per share on revenue of $2.1 billion, falling well short of consensus expectations for a $0.18-per-share profit on revenue of $2.28 billion.
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The company, which specializes in providing design and construction services to the energy industry, said 2019 is a "year of transition" as it integrates its 2018 acquisition of Chicago Bridge & Iron (CB&I), and works to complete some difficult legacy projects.
McDermott also said it expects a full-year adjusted loss of $0.32 per share on revenue of $9.5 billion, compared to analyst expectations for a $1.60-per-share profit on revenue of $9.9 billion. McDermott said the adjustment was forced by a combination of:
- the weaker-than-expected second quarter
- "slippage" in new awards and contract schedules
- changes to assumptions about certain legacy CB&I projects
- a shift to 2020 to receive incentives on the ongoing Cameron LNG (liquefied natural gas) project
Now what
McDermott CEO David Dickson said he expects "to see a sharp improvement" in operating income by the fourth quarter, and to build momentum heading into 2020. While the current results are a disappointment, Dickson said he is encouraged by the company's "record-setting" $20.5 billion backlog.
McDermott has booked more than $19 billion in awards since buying CB&I, leading Dickson to say "this strong market posture continues to demonstrate the benefits of our combination of CB&I and the opportunities available in a strong market environment."
Perhaps so, but as a construction company in the energy industry, McDermott is highly tied to cycles beyond its control; as the second-quarter results and full-year guidance show, there's still considerable work to be done before McDermott is able to cash in on the potential that Dickson sees. It's no surprise investors are heading for the sidelines to watch how this story plays out.
