Construction and engineering is an inherently "lumpy" business: Projects aren't booked and completed on smooth schedules, and there can be considerable quarter-to-quarter variations in revenue and profits.
With that in mind, investors shouldn't be overly concerned that Chicago Bridge & Iron (NYSE:CBI) posted ho-hum growth for the first quarter. Revenue climbed 8% in the quarter, and net income grew a like amount, with EPS ticking up from $0.15 to $0.16 for the March quarter. Business grew reasonably well in the North America and Europe/Africa/Middle East regions (18% and 14%, respectively), but fell off markedly in Asia and Latin America.
The big news in the quarter was that new business bookings more than tripled to $1.4 billion. With that new business, the company's backlog stood at $3.3 billion -- over 100% higher than the year-ago period and about $1 billion higher than the prior quarter.
Roughly one-third of that business was booked in North America and about 60% was booked in the Europe/Africa/Middle East region. Among those orders: The company will be building two separate LNG (liquefied natural gas) terminals that, once complete, will combine to make up a considerable percentage of the U.K.'s LNG capacity.
In addition to the red-hot LNG business, CB&I is continuing to build its book of business for clean fuel facilities and heavy crude processing facilities. What's more, the company has ongoing projects, including large LPG (liquefied petroleum gas) storage facilities in Qatar and ammonia storage tanks in Australia.
While CB&I clearly has a major role in building the world's energy infrastructure, it's not quite as sensitive to energy prices as some might think. New facilities for crude refining and clean fuel production are in clear demand, and energy prices would have to collapse before that demand would go away. What's more, LNG is becoming an increasingly important and desired fuel option, and it's unlikely that CB&I is going to see any imminent falloff in demand for new LNG projects.
CB&I shares don't look particularly cheap on a trailing P/E basis, but the EV-to-FCF ratio seems more reasonable at 17. What's more, focusing on trailing metrics can lead investors to ignore the significant backlog at CB&I and the very real possibility that revenue and income growth could accelerate over the next couple of years. Although energy prices won't stay high forever, energy demand isn't going to decline, and the facilities that CB&I builds will be an integral part of delivering more energy to customers around the world.
For more on the energy and engineering worlds:
- Valero Comes Closer to the Edge
- The Frontier of Oil Refining
- Shaw Share Sale Sinks Stock
- Building for the Future
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
