IB Net Payout Yields Model

Mixed Results in Engineering and Construction

Earnings results for Flour (FLR) and Foster Wheeler (FWLT) were less than stellar last week after horrible numbers for McDermott (MDR) the previous week.

Looking into the details for at least FLR and FWLT the numbers weren't as bad as first glance. Revenues have been increasing since the lows in 2010 and order expectations remain strong for 2012. Not to mention FLR reported a record backlog.

For this sector, it really comes down to global growth expectations and confidence. Everybody knows that demand will exist in the future has power demands continue to grow. The question is when companies will move forward with large multi billion dollar projects. Projects that will utilize any existing over capacity in the industry there by pushing up margins.

Even though margins are not overly robust both FLR and FWLT have great balance sheets that allow for strong share repurchase programs. FWLT has reduced the float by 8M and FLR by 5M in the last 12 months so shareholders are getting paid to wait.

Earnings numbers didn't meet estimates in Q3, but revenues, backlog, balance sheets, and industry outlook provide some expectations for a better future.

Details from FWLT earnings report:
  • Scope revenues at highest level since 4Q 2009.
  • Earnings impacted by equity investment in Chile operations hit by 2010 earthquake.
  • Excluding items from both quarterly periods, net income in the third quarter of 2011 was $38.8 million, or $0.33 per diluted share, compared with $50.1 million, or $0.40 per diluted share, in the year-ago quarter.    
  • The company repurchased 3,526,194 shares during the third quarter of 2011 for approximately $80 million. As of September 30, 2011, the company had approximately $261 million remaining under its authorized share repurchase program.    

Details from FLR earnings report:
  • Q3 new awards of $6.7B
  • Backlog rises to a record $41.8B
  • 2011 EPS guidance narrowed to a range of $3.2 to $3.4
  • 2012 EPS guidance established at a range of $3.4 to $3.8
  • announced today that its board of directors has approved a new 12 million share repurchase program. This new authorization is equivalent to approximately 7.1 percent of Fluor's shares outstanding at October 28, 2011.
  • Diluted shares decreased by 5M over the last 12 months.    

Disclosure: Long FWLT. Please review the disclaimer page for more details. 


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