Shaw Group (SHAW)

Q1 2012 Earnings Call

December 21, 2011 9:00 am ET

Executives

Brian K. Ferraioli - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Gentry Brann - Vice President of Investor Relations and Corporate Communications

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

Analysts

Jamie L. Cook - Crédit Suisse AG, Research Division

Brian Konigsberg - Vertical Research Partners Inc.

Andrew Obin - BofA Merrill Lynch, Research Division

Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division

Scott J Levine - JP Morgan Chase & Co, Research Division

Steven Fisher - UBS Investment Bank, Research Division

Andy Kaplowitz - Barclays Capital, Research Division

Chase Jacobson - William Blair & Company L.L.C., Research Division

Robert Connors - Stifel, Nicolaus & Co., Inc., Research Division

John Rogers - D.A. Davidson & Co., Research Division

Martin W. Malloy - Johnson Rice & Company, L.L.C., Research Division

Presentation

Operator

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Welcome to the Shaw Group First Quarter Fiscal Year 2012 Earnings Conference Call. My name is Michelle, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ms. Gentry Brann. Ms. Brann, you may begin.

Gentry Brann

Thank you, Michelle. Good morning, everyone, and welcome to Shaw's First Quarter Fiscal Year 2012 Earnings Conference Call. On the call with me today are Jim Bernhard, Shaw's Chairman, President and Chief Executive Officer; and Brian Ferraioli, Shaw's Executive Vice President and Chief Financial Officer. This morning, we will reference to slides that are available on our website, www.shawgrp.com.

And before we get started, I will ask that you please review the cautionary statement on Slide 2 of the presentation, which addresses the use of forward-looking statements and Regulation G disclosures to our non-GAAP items, ask that you please consider this information with respect to our presentation and today's call.

Now I'll refer you to Slide 3 of the presentation and turn the call over to Jim Bernhard.

J. M. Bernhard

Good morning. Our consolidated results for the first quarter of fiscal year '12 met our expectations, and we also had a solid bookings quarter with $1.5 billion in new awards. It was led by our Plant Services segment, which booked 2 significant contracts including the renewal of a fleet-wide contract with Exelon and a new contract with Arizona power and light. Shaw now provides maintenance services to more nuclear power units than anyone else in the country for sure.

Buyers are continuing their due diligence on the sale of Energy & Chemicals Group, and that is going well. We are also making progress on the project in Asia as it nears completion of the ethylene plant that we're building in Singapore. As we previously announced, we did not receive any -- the early consent on the Westinghouse put options, but we still intend to move forward with the sale of our 20% investment. This will now happen in October of 2012.

And finally, we successfully completed the $150 million "Dutch Auction" tender offer earlier this month.

Let's turn to Slide 4. Plant Services. We're certainly expecting increased opportunities for all our segments this fiscal year, and let's talk about plant service nuclear maintenance. They're certainly in a leadership position and continue to do very well. They have very strong opportunities, both on new upgrade business as well as additional clients in the nuclear maintenance business. Over the next few quarters, we will be expanding Plant Services' ability to do other things in the plant beside the outage work they're doing now, so that segment will continue to grow in a significant way over the next 3 to 5 years.

Our E&I Group has continued to see opportunities with the Department of Energy and coastal restoration along the Gulf, and their opportunities are very significant.

Our Fab & Manufacturing Group continues its international focus with new facilities in the Middle East and South America. The South America facility in Brazil will be operational in the second quarter of this year, and it already has a backlog for 12 months in that particular facility. So the international facilities are continuing to do well, UAE, Brazil, Bahrain, and there's other opportunities that we will be adding additional fabrication facilities internationally in the next 12 to 18 months.

Our Power Group has several significant milestones with the EPA regulations and nuclear process is license pending. And let me talk a little bit about the potential AQCS work that the EPA will announce this afternoon, the requirements for coal plants in the United States. We believe there's a lot of different information on what is to be scrubbed, what is to be replaced, et cetera, but by using all available information to a number of sources as well as continuing relationships with our clients, we believe a -- approximately 1/3 of the coal plants in the United States will have to be upgraded. Gases will have to be scrubbed. This market should result in a market of approximately $20 billion.

In addition to that, we believe an additional approximately 8% to 10% of the coal facilities in the United States will be retired, and the replacement electricity for those coal facilities will likely exceed $20 billion as well.

In addition to that, the reduction of mercury requirements that are likely to come out this afternoon, we believe that the environmental equipment which we'll participate in, about 50% of the coal fleet in the United States will have to have backhouse systems to contain mercury on these coal plants which we estimate to be about a $15 billion market. So all total with replacement power and environmental equipment that's necessary mandated by the EPA, the market for Shaw will exceed $50 billion, of which we'll be a major participant in a very short period of time. A lot of this work will have to be completed 3 to 5 years so that's going to be a very active market, in particular, for our Power Group.

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