Chicago Bridge & Iron (CBI) Down 35.8% Since Earnings Report: Can It Rebound?
Zacks Equity Research
Updated
It has been about a month since the last earnings report for Chicago Bridge & Iron Company N.V. CBI. Shares have lost about 35.8% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Chicago Bridge & Iron Posts Huge Q1 Earnings Miss
Chicago Bridge & Iron followed last quarter’s massive earnings miss with an even bigger one this quarter. The company’s first-quarter 2017 adjusted earnings came in at $0.24 per share, drastically lagging the Zacks Consensus Estimate of $0.95.
The bottom line fared even worse in year-over-year comparison, having plummeted 76.2% from the year-ago earnings figure of $1.01.Profits were badly hurt due to higher cost to complete estimates on two union construction projects. Net impact of project charges and fall in revenues also hurt the bottom line.
Inside the Headlines
The company reported quarterly revenues of $2,364 million, missing the Zacks Consensus Estimate of $2,426 million. Further, revenues descended 11.4% year over year. The lackluster top-line performance during the quarter was largely a result of revenue declines across three of the company’s four segments.
Reduced activity on the company’s large cost-reimbursable LNG projects in the Asia-Pacific region, the winding down of several other E&C projects, and the adverse timing of projects in its Fabrication Services group hurt the top line.
First-quarter gross profit slumped 40.9% year over year to $151 million, while gross margin contracted a substantial 370 basis points to 8.3%. Margins were deeply affected by charges for material increases in cost-to-complete estimates in two of the company’s union construction projects.
Adjusted income from operations for the quarter came in at $98 million, plunging 47.8% year over year.
The company booked new awards worth $3,315 million during the quarter compared with just $1,197 million in the prior-year quarter. The rise in new award wins was largely attributable to a rebound in the company’s key end markets, particularly in the U.S., the Middle East and China.
New awards include an engineering, procurement and construction contract worth $1.3 billion with Total Petrochemicals & Refining USA. Also, Chicago Bridge & Iron secured a $600 million contract with an integrated energy company for the engineering, procurement, construction and commissioning of a combined-cycle power plant in southern U.S. The company also won several multi-technology and licensing awards in China.
Segmental Revenues
Revenues from the Engineering and Construction segment came in at $1,286 million, down 15.2% on a year-over-year basis, mainly due to the absence of revenues from the divested nuclear operations business line. New awards in this segment were $2,240 million in the quarter, reflecting a humongous six-fold increase from the comparable quarter last year.
FabricationServices quarterly revenues totaled $476.6 million, falling 7.9% year over year. New awards received by this segment rose (up 19.4%) to $446.3 million at the end of the first quarter compared with $373.7 million in the prior-year quarter.
Technologyrevenues were up 5.4% year over year to $68 million. Additionally, this segment won over $160.4 million of new contracts in the quarter, reflecting a surge of nearly 91.8% year over year.
Capital Servicesrevenues fell 6.2% year over year to $534.2 million. Further, new contracts received by this segment rose 12.5% to $416.7 million in the quarter.
Liquidity
Chicago Bridge & Iron’s cash and cash equivalents as of Mar 31, 2017 came in at $420.1 million compared with $641.5 million a year ago. Net cash used in operating activities in the quarter came in at $290.7 million, a turnaround from the net cash generated from operating activities of $141.9 million in the comparable period last year. Net long-term debt was $1,266 million at quarter-end compared with $1,288 million as of Dec 31, 2016.
Divestiture of Capital Services Business
In February, Chicago Bridge & Iron entered into a definitive agreement to sell its Capital Services business to an affiliate of the private equity investment firm Veritas Capital for $755 million in cash. The deal is on track to conclude in second-quarter 2017.
To account for the sale, the company booked a pre-tax non-cash goodwill impairment charge of roughly $655 million in fourth-quarter 2016.
The sale is part of the company’s efforts to realign the business with its long-term strategy and realize cost synergies. The divestiture will generate significant cash proceeds, which Chicago Bridge & Iron will use to reduce its outstanding debt.
Guidance
Chicago Bridge & Iron reiterated its revenue guidance for full-year 2017, while reducing the earnings projection. The company still expects to generate revenues in the range of $9.5–$10.5 billion, of which about 80% was already in its 2016 year-end backlog. However, diluted earnings per share are now anticipated to come in the band of $3.50–$4.00 per share, down from the previous projection of a range of $4.00–$4.60 per share.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last one month period as none of them issued any earnings estimate revisions.
Chicago Bridge & Iron Company N.V. Price and Consensus
Chicago Bridge & Iron Company N.V. Price and Consensus | Chicago Bridge & Iron Company N.V. Quote
VGM Scores
At this time, the stock has a subpar Growth Score of 'D', however its Momentum is doing a lot better with an 'A'. Following the exact same course, the stock was allocated also a grade of 'A' on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for value and momentum investors.
Outlook
The stock has a Zacks Rank #5 (Strong Sell). We are expecting a below average return from the stock in the next few months.
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