FWLT: Hello Lumpy, My Old Friend

Foster Wheeler (FWLT - commentary - Cramer's Take) reported a very solid quarter, beating both top- and bottom-line estimates by a wide margin. Revenue grew a whopping 56% from year-ago levels, while EPS grew single digits vs. an expected decline.

The company did not experience the one-time events from last quarter that caused it to miss estimates. Moreover, acknowledging the lumpiness of its quarters, when comparing various metrics for this quarter management used the "average" quarter from 2007 for comparison purposes. I think this makes sense.

All of the various metrics highlighted on the call for the first quarter were above the average levels of 2007. The company experienced robust bookings (up 14%) and continues to experience strong demand. Foster Wheeler also generated strong cash flow, with total cash growing 95% year over year to record levels.

In the engineering and construction (E&C) business, demand in the refining and petrochemical sectors remained strong. Earnings before interest, taxes, depreciation and amortization margins were again strong and above 2007 levels. The scope backlog for this segment grew 13%, to a record $1.8 billion, and 45% of the backlog is from the oil refining industry.

In the Global Power Group (GPG) segment, margins improved dramatically, to 16%. Scope backlog here grew 55%, to a record $1.8 billion, almost all in power generation. Management did say that the company is seeing some instances of delays in North America, mostly due to environmental concerns, but it is too early to say if this is a trend. Either way, it is not a 2008 event.

In terms of guidance, management expects "meaningful" revenue and capacity growth in the E&C business and for margins to remain stable there. For GPG, it expects 2008 margins to be "materially" above 2007, as we have already started to see. All markets continue to be robust, and liquid natural gas demand is especially strong. Overall, management expects both groups to have a very good year.

I am incrementally more bullish following this earnings report and conference call. I don't think it really changes the comments I made about the stock in my preview, but it gives me some additional reassurance as a stockholder. Oh, and Lumpy is a friendly character from Winnie the Pooh, FYI.

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

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At time of publication, Kahn was long Foster Wheeler.

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.