McDermott Delivers Mixed 3Q Results

Energy-focused engineering and construction firm McDermott International, Inc. ( MDR - Analyst Report ) reported mixed third-quarter 2012 earnings results, owing to strong performances in certain regions, partially offset by steeper operating costs.

Earnings per share from continuing operations came in at 21 cents, behind the Zacks Consensus Estimate of 24 cents.

However, the Texas-based engineering-to-project management service provider’s per share profit were significantly higher than 5 cents earned in the third quarter of 2011. The quarter’s result was positively influenced by favorable order activity in the Asia-Pacific belt.

McDermott generated revenues of $1,028.7 million in the quarter, up 16.9% from the third quarter of 2011 and also exceeded our expectation of $990.0 million. Better fabrication and marine operations in the Middle East and Atlantic regions boosted the company’s results.

On a reported basis, the company registered operating income of $82.5 million (jumped 134.4% year over year) during the quarter. Total costs and expenses also increased 11.7% from the corresponding period, last year to $941.6 million.

Backlog

At the end of the third quarter of 2012, McDermott had a backlog of $5,339.8 million, compared with $4,255.4 million a year ago. As of June 30, 2012, backlog was $5,746.7 million.

Balance Sheet

As of September 30, 2012, McDermott had cash/cash equivalents of $638.8 million and long-term debt (including current maturities) of approximately $108.3 million (representing a debt-to-capitalization ratio of approximately 5.3%).

Contract

On the same day, one of the affiliates of McDermott won cable procurement and installation contract for Saudi Aramco in the Safaniya, Abu Safah and Marjan fields. Another affiliate of the company also received contracts for North Dome and PDM projects from Saudi Aramco.

Recommendation

We are maintaining our Neutral recommendation on McDermott International – which shares business ties with Williams Partners L.P. ( WPZ - Snapshot Report ) . The company has a diversified product portfolio, specialty manufacturing and service capabilities, and proprietary technological expertise.

Additionally, McDermott’s improving award activity, geographic footprint in high-growth regions, and continued strong project execution provide solid visibility into its earnings for 2013.