Back to top

Analyst Blog

Energy-focused engineering and construction company McDermott International (MDR - Analyst Report) reported weaker-than-expected fourth quarter and full year 2011 results, hurt by higher operating costs and poor performances from various projects.

The company reported earnings per share from continuing operations of 4 cents in the quarter, below the Zacks Consensus Estimate as well as the prior-year quarter result of 19 cents. The underperformance can be attributed to steeper operating expenses primarily due to additional charges on two Atlantic projects.

For the full year, earnings per share from continuing operations were 64 cents, missing our projection of 79 cents per share. Comparing year over year, reported result declined 36.0% from $1.00 per share.

McDermott generated revenues of $816.2 million in the quarter, up an impressive 51.2% from fourth quarter 2010. The quarterly performance was buoyed by strong contributions from the Asia-Pacific belt (attributable to increased marine activity on large engineering, procurement, construction and installation or EPCI projects) along with higher activity in the Middle East and Atlantic regions. However, reported revenues failed to meet our estimate of $905 million.

McDermott generated revenues of $3,445.1 million in fiscal 2011, compared with $2,403.7 million in 2010.

The company’s operating income was $31.4 million (down 47.0% year over year) in the quarter and $250.7 million in 2011 (versus $314.9 million in 2010). These results were adversely affected by losses from various projects.


At the end 2011, McDermott had a backlog of $3,881.1 million, compared with $5,038.9 million in the prior year. As of September 30, 2011, backlog was $4,255.4 million.

Balance Sheet

As of December 31, 2011, the company had $570.9 million cash on hand and long-term debt (including current maturities) of $93.7 million, representing a debt-to-capitalization ratio of 5.1%.


McDermott expects to reap strong benefits from the Inpex Ichthys project and other lucrative ventures in 2012. The Inpex Ichthys subsea contract was awarded to the Australian unit of the company in late January. With an estimated value of $2.0 billion, this is the biggest subsea contract for McDermott. 

Our Recommendation

We, however, believe that the company’s performance remains highly susceptible to the volatile and cyclical oil and gas sector. A potential drop in oil and gas prices could curtail deepwater drilling and dampen subsea equipment demand, adversely affecting bookings.

Additionally, following The Babcock & Wilcox Company (BWC - Snapshot Report) spin-off, McDermott is now less diversified with a greater business risk profile. The company also faces stiff competition from peers such as Chicago Bridge & Iron Company N.V. (CBI - Analyst Report) and Foster Wheeler AG (FWLT - Analyst Report).

Houston, Texas-based McDermott International operates as a global engineering, procurement, construction, and installation company that focuses on designing and executing complex offshore oil and gas projects. The company has access to most major offshore oil and gas producing regions, including the U.S., Mexico, Canada, the Middle East, India, the Caspian Sea and Asia Pacific.

Hence, we see little reason for investors to own the stock and maintain our long-term Underperform recommendation.

Please login to or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research


Are you a new Zacks Member or a visitor to

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
SUPER MICRO… SMCI 27.00 +10.25%
CANADIAN SO… CSIQ 38.34 +8.18%
BANCO DO BR… BDORY 16.78 +8.05%
CENTURY ALU… CENX 26.97 +7.97%
WILLDAN GRO… WLDN 11.38 +5.86%