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.

Read the full analyst report on FWLT