McDermott International, Inc. (MDR - Free Report) recently reported earnings of 29 cents per share in second-quarter 2018, surpassing the Zacks Consensus Estimate of 15 cents. The better-than-expected earnings can be primarily attributed to solid operational execution. However, the bottom line fell from the year-ago quarter’s earnings of 38 cents due to increased costs and expenses.
McDermott generated revenues of $1.7 billion in the quarter, which were nearly 120% higher than the prior-year figure of $789 million and also surpassed the Zacks Consensus Estimate of $1.6 billion. The rise in revenues was supported by Cameron and Freeport LNG projects, ethylene production project LACC, Saudi Aramco Safaniya 5 and Woodside Greater Western Flank II.
The results incorporate the effects of its strategic combination with CB&I that occurred on May 10.
Costs and Expenses
Cost of operations increased from $650 million in the year-ago quarter to about $1.5 billion in the quarter under review. While expenses in research and development increased to $5 million in the second quarter of 2018 from $1 million in the year-ago period; that of selling, general and administrative rose to $75 million from the prior-year quarter’s $50 million. All these, combined with restructuring and integration costs, transaction expenses and other intangibles amortization resulted in a total expense of $1.7 billion from the year-ago figure of $701 million.
The Revenue Pipeline of the company includes Backlog, Bids & Change Orders Outstanding and Target Projects. As of Jun 30, McDermott had a backlog of $10.2 billion compared with $3.3 billion a year ago. It had $19 billion in Bids & Change Orders Outstanding and $78.5 billion in Revenue Pipeline at the end of the second quarter compared with $20.1 billion in the year-ago quarter.
Balance Sheet and Capital Expenditure
Capital expenditure of McDermott was about $24 million during the quarter compared with almost $18 million in the year-ago quarter. In the quarter, the company generated $374 million in free cash flow. As of Jun 30, 2018, the company had cash and cash equivalents of $814 million and long-term debt of approximately $3.4 billion. Its debt-to-capitalization ratio was about 51.5%. The company also has $879 million under a revolving credit facility. The company’s balance sheet reflects the acquisition of CB&I.
Second-Half 2018 Guidance
The company provided guidance for the second half of the year. McDermott expects revenues in the $4.8-$5.1 billion range. The company expects EBITDA in the range of $350-$390 million. Capital expenditure is anticipated to be around $80 million. Adjusted net income is now anticipated to be approximately within $200-$210 million. Also, McDermott expects free cash flow within $430-$450 million. EPS is estimated between 74 cents and 80 cents.
Zacks Rank & Other Key Picks
Currently, Houston, TX-based McDermott sports a Zacks Rank #1 (Strong Buy). Investors interested in the Energy sector can opt for other top-ranked stocks like Canadian Natural Resources Limited (CNQ - Free Report) , ConocoPhillips (COP - Free Report) and Cheniere Energy, Inc. (LNG - Free Report) . While Canadian Natural Resources sports a Zacks Rank #1, ConocoPhillips and Cheniere Energy both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Calgary, Canada-based Canadian Natural Resources is an upstream energy company. The company’s top line for 2018 is anticipated to improve 35.3% year over year, while its bottom line is expected to increase more than 168%.
Houston, TX-based ConocoPhillips is an integrated energy company. The company’s top line for 2018 is likely to improve 14.1% year over year. In the last four reported quarters, the company delivered an average positive earnings surprise of 27.6%.
Houston, TX-based Cheniere Energy mainly focuses on liquefied natural gas-related businesses. The company’s top line for 2018 is anticipated to improve 25.9% year over year, while its bottom line is expected to increase more than 225%.
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