Foster Wheeler Meets Expectations

Foster Wheeler AG (FWLT - Analyst Report) reported results for the first quarter of 2009.  In summary, Operating Revenues were $1.265 billion and EPS were 57¢; our estimates were $1.254 billion and 57¢. Close enough for government work!

To put the quarter into perspective, Operating Revenues were down by 29.6% while EPS were off by 40.0%, even though the number of Shares declined by 12.8%. Drilling down into the details, Contract Profit declined by 25.0% to $162.8 million, while the Contract Profit Margin rose from 12.1% to 12.9%. S,G&A Expense rose 6.7% to $69.3 million and, as a percent of Sales, climbed from 3.6% to 5.5%.  Other Income was off by 41.5% to $8.2 million, while Other Deductions were only off by 4.7% to $6.1 million. Interest Income declined by 74.6% to $2.7 million, while Interest Expense was only down by 32.3% to $4.2 million.

On top of all that, Net Asbestos-Related transactions went from a positive $14.2 million to a negative $1.8 million. The Tax Rate dropped from 22.3% to 19.5%. Minority Interests leaped by 219.0% to $1.5 million. Net Income dropped by 47.2% to $72.9 million. Incoming Orders were down by 27.2% to $906 million and Backlog declined by 43.1% to $5.0 billion plus there was a downward Contract Modification of over $134 million. This indeed was a very tough quarter.

Looking at the Balance Sheet, one gets some insight as to why Interest Income was off so much: Cash & Equivalents -- including Short-Term Investments -- declined by $380.0 million to $780.2 million. Further, the Current Ratio dropped to 1.26:1 from 1.40:1 while Net Long-Term debt rose from 17.3% of Equity to 25.6%.

With respect to FWLT’s two Segments, E&C Backlog dropped by 42.9% to $4.1 billion, while Power Backlog declined by 54.1% to 813.6 million. New Orders booked by E&C rose 14.4% to 14.4% to $809.5 million while Power dropped by a whopping 82.0% to 96.5 million. E&C Operating revenues declined by 31.5% to 952.4 million and Power was off by 22.9% to 312.1 million.

EBITDA for E&C dropped by 39.5% to $81.3 million while Power declined 24.3% to $48.8 million. In addition, overall EBITDA was down by 34.6% to $105.6 million as the deduction for Corporate & Finance jumped by 588.4% to $24.5 million.

According to the Company, Q1-09 was significantly impacted by non-operating items, especially unfavorable currency translation, as well as unfavorable operating items, such as lower volumes, not-so-good contract timing and mix and cost under-absorption.

Looking forward, the Company is faced with several difficulties: slippage of client decisions, increased competition and phased-release (as opposed to lump-sum award) of contracts. The anticipated range of full-year 2009 margins for the Segments: E&C = 20% to 22%; Power = 10.5% to 12.5% (as indicated above, they were 18.4% and 15.8% in Q1-09); given that E&C is significantly larger than Power, the implication of this is that future quarters should be better.

The Zacks opinion on FWLT was raised to Hold just last week.