Foster Wheeler Is Getting It Done

For Jordan Kahn's take leading up to the Foster Wheeler call, click here.

Foster Wheeler (FWLT - commentary - Trade Now) reported an outstanding quarter, one of the best I can remember relative to expectations. Earnings trounced estimates, coming in at 98 cents a share (adjusted) vs. expectations of 62 cents, and in line with year-ago levels. The stock gapped higher and is up 13.5% so far today.

The results came from excellent execution, rather than from one-off items. Both business segments -- the Global Power Group and the engineering and construction group -- produced strong EBITDA, but the E&C group stood out. The company did a good job containing costs and a great job of taking advantage of "profit enhancement" opportunities that are part of their contracts. Margins were 27.1%, above the quarterly average for 2008 of 24.0%. New orders booked remained strong, growing 16% vs. the average quarter in 2008. Scope backlog rose to an all-time record level of $1.98 billion, and man-hours in the backlog ended the quarter at 15.2 million, the second highest in the company's history.

New orders were strong despite no new "mega" projects booked during the quarter. Management said that competitive pressures are somewhat more pronounced than last year but that their prospect list remains extensive with numerous projects moving forward. The eight mega projects that have been announced have seen further progress, with additional man-hours booked in the quarter (details available on their earnings presentation).

For the Global Power Group, margins were up nicely but EBITDA was modestly below 2008 levels. Demand for the company's fluid boilers remains weak, and market conditions are likely to remain challenging. That said, the company does expect several contract decisions in the second half of the year, and given Foster Wheeler's leadership in this area, management expects a high win rate. For now, new orders in the GPG segment remain weak.

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At time of publication, Kahn was long FWLT.

Jordan Kahn, CFA, is a portfolio manager with Beverly 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.