Sunday, August 5, 2012

Chicago Bridge & Iron 2Q2012 Summary

On July 24 Chicago Bridge & Iron reported earnings of $.74 per share, which beat expectations of 16 analysts by $.02 per share. CBI was able to report $1.3 billion in revenues against $1.1 in the comparable quarter one year ago. The company was able to report their strongest earnings in a quarter since the company went public in 1997. New orders for the company amassed over $500 million with growth on existing projects of almost $750 million, along with $600 million of smaller underpinning works spread across the company’s 3 business sectors. The company confirmed projects FY2012, with new orders totaling $5.5 billion to $7 billion, and have narrowed the range for revenue to $5.4 billion to $5.6 billion, and earnings per share of $2.85 to $3.05.
                The company has developed a strong and durable level of backlog over time. With over $10billion in backlog, we can be assured of work for the company over a long period of time. To start off Q3, the company assured a project in New South Wales, Australia which is worth over $225 million, adding to the strong backlog that already exists.
                CBI CEO Phil Asherman focused heavily on the performance of Lummus Technology, one of the strongest segments within the company. The group was driven by new awards, creating $300 million and producing 25% on income from operations. Lummus technology will continue to be a major part of our thesis on the growth of CBI and what will drive further appreciation. Also, on a side note, CBI was declared in the top tier of safety, considering their line of work and the number of hours worked by the company’s employees.
                Chicago Bridge & Iron was able to return $23.4 million to the shareholders, which was $18.6 million in stock repurchase and $4.8 million in quarterly stock dividend, while the company maintains $552.8 million in Cash and Cash equivalents. This quarter marked the 4th time in the past 5 quarters that Chicago Bridge & Iron was able to beat on their earnings estimates. Since the announcement, the security appreciated by $4.29 per share or 11.78% through Friday July 27, 2012.
                On Monday July 30, 2012, rumors emerged about the possibility of Chicago Bridge & Iron purchasing the Shaw Group which is a provider of technology, engineering, procurement construction, maintenance, fabrication, manufacturing, consulting, remediation and facilities management services. The supposed purchase price would be $46 per share, which is a 72% premium over the Friday close. This news was received poorly from the investing community as the shares traded down 14.6%
                The deal will be for $3.04 billion in cash, which Chicago Bridge & Iron will finance with cash on hand and $1.9 billion in debt. The acquisition is expected to close in early 2012 and will add to per share earnings moving forward from that year. Chicago Bridge & Iron CEO Asherman said of the deal “We will become fully diversified across the entire energy sector, from power generation to LNG, from refining to gas processing, from offshore to oil sands and beyond. “ Despite his optimism, CBI is still purchasing a company that recently reported a loss, and does not have a strong financial history, which is leaving investors uneasy about the future of the company.

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