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McDermott International Down on Weak Q4 Earnings

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Offshore oil and gas-focused engineering and construction firm, McDermott International (MDR - Free Report) reported weak fourth-quarter 2013 results. The company’s operating loss in Malaysia-based deepwater pipelay development, as one its vessels was not operational owing to thruster failure, hampered the fourth-quarter results. This was however partially compensated by a fall in total expenses. The weak results led to a 9.5% decline in the company’s share price on the NYSE, in after-market trade hours.

Loss per share from continuing operations came in at $1.37 against the year-ago quarter earnings of 17 cents. The bottom line also compared unfavorably with the Zacks Consensus Estimate of earnings of 16 cents per share.

McDermott generated revenues of $517.3 million in the quarter, down 48.1% from the fourth quarter of 2012. The figure also failed to beat the Zacks Consensus Estimate of $825.0 million.

For the year ended Dec 31, 2013, McDermott reported loss from continuing operations of $2.18 per share, much wider than the Zacks Consensus Estimate of a loss of 65 cents per share. The number also compared unfavorably with a profit of 66 cents per share in 2012. Revenues were recorded at $2.7 billion against the year-ago number of $3.6 billion.

Total Expenses

Total costs and expenses decreased 9.1% to $829.8 million from the year-ago quarter.


At the end of the fourth quarter, McDermott had a backlog of $4,802.2 million compared with $5,067.2 million a year ago.

Balance Sheet

Capital expenditure for McDermott during the quarter was $58.6 million. As of Dec 31, 2013, McDermott had cash and cash equivalents of $118.7 million and long-term debt (including current maturities) of approximately $88.6 million (representing a debt-to-capitalization ratio of approximately 5.8%).

Zacks Rank & Other Picks

McDermott derives its revenues from companies in the oil and gas exploration and production (E&P) industry, a highly volatile and cyclical sector that is directly exposed to commodity prices. A potential drop in oil and gas prices could restrain deepwater drilling and dampen subsea equipment demand, adversely affecting bookings at McDermott.

Moreover, McDermott has historically used bolt-on acquisitions to plug holes in its product/service portfolio. The company may find it difficult to complete accretive transactions in the future, which could negatively impact its growth rate.

McDermott currently retains a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

Meanwhile, one can look at better-ranked players in the energy sector like Range Resources Corporation (RRC - Free Report) , Helmerich & Payne Inc (HP - Free Report) and Patterson-UTI Energy Inc. (PTEN - Free Report) . All the stocks sport a Zacks Rank #1 (Strong Buy).

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