Shaw Group's CEO Discusses Q4 2011 Results - Earnings Call Transcript

Shaw Group (SHAW)

Q4 2011 Earnings Call

October 31, 2011 9:00 am ET

Executives

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

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

Gentry Brann - Vice President of Investor Relations and Corporate Communications

Analysts

Jamie L. Cook - Crédit Suisse AG, Research Division

Brian Konigsberg - Vertical Research Partners Inc.

Randy Bhatia - Capital One Southcoast, Inc., Research Division

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

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

Steven Fisher - UBS Investment Bank, Research Division

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

Andy Kaplowitz - Barclays Capital, Research Division

Brian Konigsberg

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

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

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

Presentation

Operator

Welcome to the Shaw Group Inc. Fourth Quarter and Fiscal Year 2011 Earnings Conference Call. My name is John, 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 Gentry Brann. You may begin, Gentry.

Gentry Brann

Thank you, John. Good morning, everyone, and welcome to Shaw's Fourth Quarter Fiscal Year 2011 Earnings Conference Call.

On the call with me this morning 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'll be referencing the slides that are available on our website, www.shawgrp.com.

Now before we get started, I would 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. We ask that you please consider this information with respect to our presentation and today's call.

Now, I refer you on to Slide 2, and turn the call over to Jim Bernhard

J. M. Bernhard

Good morning, guys. Overall, this is a very tough quarter for us. We had several significant items that had a negative impact on our fourth quarter, and let's review those in just a moment. But before we begin our presentation, I want to assure you that we're putting those items behind us and moving forward. We're going to have in place to emulate our successes on some of these projects and certainly correct our deficiency on these problem projects.

We're expecting improvements in fiscal 2012 and have complete focus on project execution, cost containment and increasing our bookings. We're expecting the license for the U.S. nuclear projects with the next few months, and anticipate those projects will have a positive impact on our earnings in '12. Our balance sheet is very healthy, and our market outlook for the year is very promising, with strong opportunities in most of the operating segments.

If you'll turn to page -- excuse me, Slide 3, we did have strong bookings for the quarter with $1.8 billion in new awards and the cash flow remained positive, $211 million. However, there were several significant events, and let's review those. First, our E&C project continued to experience subcontractor cost increase and schedule delays totaling approximately $39 million, with an additional $15 million reduction from the foreign currency exchange variations as the job begin -- excuse me, the foreign currency translations for the fourth quarter.

We had a profit reversal on coal project and our power segment of $63.9 million, along with the quarterly reduction and percentage of completion, profitability recovery of $8 million. Let me emphasize that this coal project is still a quite profitable project and is ahead of schedule.

We had an unfavorable settlement of our F&M segment of $14.8 million, and we thoroughly believe that we're entitled to additional insurance coverage on this contract.

As we previously announced, we received the arbitration award of $32.5 million on our power segment that had an immaterial net effect on our earnings for the quarter. So while there's been a very difficult quarter for us, certainly, we are making some changes in our business that, I believe, will position for us to execute better in the future.

Let's turn to Slide 4. Let's look at the -- we have 3 major fixed-price contracts. By fixed-price major, we define that as over $1 billion. The first one is an ethylene plant in Singapore, and this project has about 96% complete. It has many change orders and has a significant equitable adjustment, which is in the process of resolution on the appropriate contract terms. The other -- our major coal projects are in start up, having had -- one having an adjustment in contract cost, yet remains very profitable. The other coal plant, our largest project, will complete above the original estimated profit. We've had some success on these major projects, as well as some favors as you can see. We will learn from our failed execution strategies and duplicate our execution successes.

Turning to our nuclear projects. The contracts certainly have improved contract terms over the fixed coal plants that we took some 4 years ago. This nuclear power contracts will remind you that where the fee may very, that the craft labor on the project has the ability to cost -- our contract cost for cost recovery. So they're quite a different than the fixed-price contracts that we took a number of years ago.

Turning to Slide 5, we're also making some organizational changes. Gary Graphia, our Chief -- as Chief Operating Officer, assumed the role of Executive Vice President, resuming the previous responsibilities for strategic initiatives including corporate developments, M&A and client relations, leaving me with some more time to focus on operations and putting Gary back in the position that he has been very successful on in the past.

Read the rest of this transcript for free on seekingalpha.com

More from Stocks

Trump's 'Space Force' Could Launch a $1 Trillion Industry, Morgan Stanley Says

Trump's 'Space Force' Could Launch a $1 Trillion Industry, Morgan Stanley Says

Abiomed Stock Should Rise Some 12% From Here, Piper Jaffray Analyst Says

Abiomed Stock Should Rise Some 12% From Here, Piper Jaffray Analyst Says

Video: Here Is Why Carvana Isn't Worried About Amazon

Video: Here Is Why Carvana Isn't Worried About Amazon

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

REPLAY: Jim Cramer on the Markets, Oil, Starbucks, Tesla, Okta and Red Hat

REPLAY: Jim Cramer on the Markets, Oil, Starbucks, Tesla, Okta and Red Hat