FWLT Reports Muted Results

For Kahn's preview heading into the Foster Wheeler conference call, please click here.

Foster Wheeler (FWLT - commentary - Cramer's Take) reported mixed results. The EPS figure topped consensus estimates, but it was aided by a tax benefit and lower share count, both of which are considered somewhat one-time events. Revenue fell short of expectations, and that, along with the decline in the backlog, spooked investors.

Management said that the fundamentals in the engineering and construction business remain strong, but that the uncertain economic environment is causing clients to take a more measured approach, and in many cases this means approving projects incrementally, in stages, rather than in one fell swoop.

The power business (GPG) continues to experience weaker conditions, particularly in North America. Markets have slowed, and the company is now undertaking steps to right-size that business and lower head count to appropriate levels. In the fourth quarter, both new orders as well as backlog declined in this segment.

Revenue was also hurt by currency translations, as well as some losses on foreign-exchange hedges. FWLT ended the quarter with $798 million in cash, which is down quite a bit from last quarter. The reason is that the company spent $485 million buying back shares, and another $20 million retiring some debt. I am glad to see them buying back shares at low levels, so I am not worried about its cash position.

In terms of the eight "mega" projects that the company has talked about recently, the update was a mixed bag. Essentially, FWLT signed one project, lost two, and one is still ongoing. Another two were partially signed, and this is a positive, as the company will likely get the remainder of the project as well, but the figures cannot be added to the backlog until the project is fully booked. Had these been fully booked in the quarter, it would have added another $200 million to the backlog.

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At time of publication, Kahn was long FWLT.

Jordan Kahn, CFA, is a portfolio manager with Bevery Investment Advisors, a Beverly Hills, Calif., money manager. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. Kahn appreciates your feedback; click here to send him an email.