Chicago Bridge & Iron Company N.V. reported second-quarter 2016 adjusted earnings of $1.17 per share, which missed the Zacks Consensus Estimate of $1.22 by a nickel. Also, the bottom line fell 24.5% from the year-ago figure of $1.55 per share.

The bottom-line decline can be largely attributed to the poor revenue performance. Overall weakness in the energy markets added to the company’s problems.

Inside the Headlines

The company reported second-quarter 2016 revenues of $2,695.6 million, missing the Zacks Consensus Estimate of $2,808 million. Also, revenues fell 15.9% year over year.

The lackluster top-line performance during the quarter was largely a result of revenue declines across all of the company’s segments. Also, absence of revenues from the previously divested nuclear operations compounded the fall.

Gross profit decreased 23.1% year over year to $294.5 million, while gross margin fell 100 basis points to 10.9%. Lower revenue volume of higher margin Technology operating group, decreased margin mix and reduced operating costs leverage hurt gross profits during the quarter.

The company booked new awards worth $1,758.8 million during second-quarter 2016, compared with $2,844.5 million in the prior-year quarter. The decline in new award wins was largely attributable to cautionary spending on the part of large clients who continue to defer investments due to softness in energy markets.

Noteworthy new awards for the second quarter of 2016 included two gas turbine power projects in the U.S. and increased activities on the LNG mechanical erection project in the Asia-Pacific region. Both of these awards are for the company’s Engineering & Construction operating group.

Segmental Revenues

Revenues from the Engineering and Construction segment came in at $1,543.1 million, down about 19.5% on a year-over-year basis, largely due to the absence of revenues from the divested nuclear operations business line. New awards in this segment were $963.4 million in the quarter, reflecting a decline of 26.2% from the comparable quarter last year.

Fabrication Services quarterly revenues totaled $526.6 million, declining 13.9% year over year owing to the winding down of several storage tank projects in the U.S., South America and the Asia-Pacific region. Moreover, unfavorable timing of new awards compounded the revenue fall in this segment. Also, new awards received by this segment declined drastically to $253 million at the end of the second quarter compared with $844.7 million in the prior-year quarter.

Technology revenues were down 30.6% year over year to $64.5 million largely due to lower catalyst and licensing volume as well as unfavorable timing of new awards. However, this segment won over $107.8 million of new contracts in the quarter, reflecting growth of nearly 32.9%.
Capital Services revenues declined 4.3% year over year at $561.3 million on account of lower work in the U.S. industrial and power services domain. Also, new contracts received by this segment plunged 29% to $434.7 million in the quarter.

Liquidity

Chicago Bridge & Iron’s cash and cash equivalents as of Jun 30, 2016 stood at $602.9 million, compared with $355.1 million a year ago. Net cash generated from operating activities at the end of second-quarter 2016 was $319.3 million, a remarkable turnaround from the net cash used in operating activities of $194.7 million at the end of second-quarter 2015.

Long-term debt was $1,474.5 million as of Jun 30, 2016, compared with $1,492.4 million as of Mar 31, 2016.

Share Repurchase

Chicago Bridge & Iron has resumed its stock repurchase program earlier this month and has purchased approximately 3.6 million shares to date. Going forward, the company announced plans to continue the program till it reaches the $200 million limit.

Guidance Lowered

On account of the deferred new projects by energy customers, Chicago Bridge & Iron lowered both its top and bottom-line guidance for full-year 2016. The company now expects full-year revenues in the range of $10.6–$11.0 billion, down from the earlier guided band of $11.4–$12.2 billion. Also, the company lowered its earnings per share expectation to $4.70–$5.00 from the previous range of $5.00–$5.50.

To Conclude

Chicago Bridge & Iron’s second-quarter earnings took a beating from macroeconomic uncertainties and prolonged softness in the energy markets. The company’s downward revision of outlook implies these conditions can get worse in the future which will essentially impact client spending.

Despite these headwinds, Chicago Bridge & Iron is confident about the strong rebound in new awards in the Technology operating group. Also, diligent cost-cutting strategies as well as the company’s competitive business model are expected to offset some of the weaknesses.

Chicago Bridge & Iron currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Dycom Industries Inc. (DY Quick QuoteDY - Free Report) , Mastec, Inc. (MTZ Quick QuoteMTZ - Free Report) and Willdan Group, Inc. (WLDN Quick QuoteWLDN - Free Report) . While Dycom and Mastec sport a Zacks Rank #1 (Strong Buy), Willdan Group holds a Zacks Rank #2 (Buy). 

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