Heavy construction stocks have been dragged into negative territory Tuesday morning after McDermott International Inc. (MDR) reported disappointing second quarter revenue.
McDermott stock posted one of the most significant losses in the sector, falling nearly 15%. Shares of Fluor Corp. (FLR) and Foster Wheeler, Ltd. (FWLT) each dropped about 3%.
Around 10:40 am Eastern Time, shares of McDermott were down $6.07 at $35.81, while FLR stock was down $2.73 at $73.45 and FWLT shares were down $1.22 at $48.66.
Meanwhile, Matrix Service Co. (MTRX), Insituform Technology (INSU), Mastec Inc. (MTZ) and Sterling Construction Co. Inc. (STRL) were also in the red.
After the closing bell on Monday, McDermott reported a 19% growth in second quarter profit as revenue increased 26.4% on strong segmental revenue growth, led by the company's oil & gas construction division. Earnings per share for the quarter increased and matched the market expectation.
Net income for the quarter increased 19% to $177.54 million from $149.37 million in the previous year. On a per share basis, earnings advanced to $0.77 from $0.66 in the second quarter of 2007. On average, nine analysts polled by First Call/Thomson Financial expected earnings of $0.77 per share for the quarter.
Second quarter revenues advanced 26.4% to $1.79 billion from $1.42 billion in the prior-year quarter. However, this was below the consensus revenue estimate of six analysts which was $1.85 billion.
Revenue from the Offshore Oil & Gas Construction segment climbed 50.4% to $872.27 million, aided by higher activities in the Middle East and Asia Pacific regions. Second quarter revenue from the power generation systems segment increased 3.6% to $698.07 million, helped by higher retrofit activity of existing facilities, replacement parts and service and replacement nuclear steam generators. Government operations segment revenue grew 34.6% to $225.76 million, mainly due to higher volumes and procurement activity in the manufacture of nuclear components for certain government programs.
Quarterly operating income increased 27.1% to $231.12 million from $181.79 million in the year-ago quarter.
Commenting on the results, Bruce Wilkinson, Chairman of McDermott, said "The strong project execution in our Power Generation Systems segment, as well as its robust parts and service offerings, coupled with growth in the Government Operations segment led to the Company's overall strong performance."
In a separate announcement, the company also announced that its subsidiary, The Babcock & Wilcox Co., entered into a definitive agreement to buy Nuclear Fuel Services, Inc., a provider of specialty nuclear fuels and related services. The financial terms for the transaction were not disclosed.
The transaction is expected to be completed by the end of 2008.
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