Shaw Group Q4 2010 Earnings Call Transcript

Shaw Group Q4 2010 Earnings Call Transcript
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Shaw Group (SHAW)

Q4 2010 Earnings Call

October 28, 2010 9:00 am ET

Executives

Chris Sammons - Vice President of Investor Relations & Corporate Communications

Brian Ferraioli - Chief Financial Officer and Executive Vice President

J. Bernhard - Founder, Chairman of the Board, Chief Executive Officer, President and Member of Executive Committee

Analysts

Scott Levine - JP Morgan Chase & Co

Barry Bannister - Stifel, Nicolaus & Co., Inc.

Richard Roy - Citigroup Inc

John Rogers - D.A. Davidson & Co.

Andy Kaplowitz - Barclays Capital

Sameer Rathod - Macquarie Research

Joseph Ritchie - Goldman Sachs Group Inc.

Jamie Cook - Crédit Suisse AG

Steven Fisher - UBS Investment Bank

Presentation

Operator

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Welcome to the Shaw Group's Fourth Quarter 2010 Earnings Conference Call. My name is Christine, and I will be your operator for today's conference. [Operator Instructions] I will now turn the call over to Chris Sammons, Vice President, Investor Relations. Mr. Sammons, you may begin.

Chris Sammons

Thank you, operator. Good morning, everyone. Thank you for being on the call with us today. As usual, we posted a slide presentation along with our press release this morning. To access those slides, you can go to shawgrp.com, and they're available either on the homepage or on the Investor Relations page. We'll reference the slides by numbers during the call.

Leading the call today are Jim Bernhard, Chairman of the Board, President and Chief Executive of Shaw; and Brian Ferraioli, Executive Vice President and Chief Financial Officer.

Now I'd like to refer you to Slide #2, which addresses the use of forward-looking statements and Regulation G disclosures for our non-GAAP items. Please consider this information appropriately with respect to today's call. We'll have a question-and-answer period after our prepared remarks, and the operator will provide instructions for that.

Now, I'll refer you to Slide #3, and I'll turn the call over to Jim Bernhard, Chairman and CEO.

J. Bernhard

Good morning. Before we get started here, we have to note, we renamed two of our segments, which will better reflect our service offering. First our Fossil, Renewables & Nuclear segment, which we will simply call our Power segment. Our Maintenance segment will be referred to as our Plant Services segment.

Turning to Page 4. Before we get started on the fourth quarter results, I'd like to give you a snapshot of fiscal year 2010 as a whole. As forecast, we saw an increase in earnings in 2010. This was primarily a result of our continued focus on project performance as well as efforts to contain costs through the company.

We're starting to see an improvement in market conditions. The economic environment, however, is still challenging. Shaw has put considerable focus on cost containment, as we see in today's report. We believe that this has been a significant driver of our results for the year, and we intend to maintain this same focus for 2011. Overall, we expect to see continued earnings growth in the fiscal year 2011.

In the fourth quarter of 2010, our earnings were driven by strong operating performance on our Environmental & Infrastructure as well as our Fabrication & Manufacturing segments, as well as the initial work on the domestic nuclear contracts that we have.

Our GAAP earnings continued to reflect volatility in the Westinghouse segment, where we experienced a $102.7 million pretax translation loss on the Westinghouse bonds. However, as most of you know, we used financial results, excluding the Westinghouse segment, to communicate financial performance externally as well as internally for setting budgets, determining forecasts, setting definitive compensations, et cetera. We'll talk more about the Westinghouse impact on our financial review.

Once again, we had a record cash balance, with $1.8 billion, as we continue to generate positive cash flow during the quarter of $218 million, Looking through in the quarter was in line with our expectations. New bookings were led by our E&I and the Infrastructure group and our Plant Services segment.

Turning to Page 5. Let me introduce Brian Ferraioli, who will give us our financial review at this time.

Brian Ferraioli

Thanks, Jim, and good morning, everyone. Turning to Slide 6. Our backlog remains strong with an excess of $20 billion of unfilled orders currently sitting in backlog. We booked $1.5 billion in new awards during the fourth quarter of fiscal '10, and that was led by new awards in our Environmental & Infrastructure group and the Plant Services segment. During the next four months, we expect to work off about $5.3 billion or approximately 27% of the existing backlog. And for the year, we booked approximately $4.4 billion in new awards.

Turning to Slide 7. Again, our typical chart shows as reported debt numbers in addition to the results excluding Westinghouse. As we've talked about in the past, our business volumes were impacted, as expected, by the reduced bookings that we've incurred throughout 2010. We experienced a change in the business mix, and we'll talk a little bit about that more as we get to the segment slides, but that resulted in slightly lower margins in 2010 versus similar period of 2009. Separately, cost reductions will help to offset the margin compression and help to increase our profit.

Turning to Slide 8. As we've previously reported, our earnings were primarily driven by solid operating performance in our E&I group, the Fabrication & Manufacturing and Plant Services segments, as well as from the early phases of our nuclear contracts here in the U.S.

The E&I group continues to generate strong quarterly revenues, and is due primarily from increased U.S. government spending. The Power business on the other hand, its volume of business was down year-over-year, primarily due to its decline in the air emissions projects that we had been executing in 2009. As you know, there's a legislation pending on changes in the air emissions, we expect that business to pick up as we move forward in 2011 and '12.

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