McDermott International's CEO Discusses Q4 2011 Results - Earnings Call Transcript

McDermott International (MDR)

Q4 2011 Earnings Call

March 01, 2012 8:00 am ET


John E. Roueche - Vice President of Treasurer & Investor Relations

Stephen M. Johnson - Chairman, Chief Executive Officer and President

Perry L. Elders - Chief Financial Officer, Principal Accounting Officer and Senior Vice President


Andy Kaplowitz - Barclays Capital, Research Division

Jamie L. Cook - Crédit Suisse AG, Research Division

Tahira Afzal - KeyBanc Capital Markets Inc., Research Division

Will Gabrielski - Lazard Capital Markets LLC, Research Division

Steven Fisher - UBS Investment Bank, Research Division

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

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Brian Konigsberg - Vertical Research Partners Inc.

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



Ladies and gentlemen, thank you for standing by, and welcome to the McDermott International Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to our host, Mr. Jay Roueche, McDermott's Treasurer and Vice President of Investor Relations. Please go ahead.

John E. Roueche

Thank you, Diana, and thanks to all who are joining this morning. We appreciate you participating with us to discuss the fourth quarter and full year of 2011, which we released yesterday through our press release and our Form 10-K filing. As usual, joining me today are Steve Johnson, McDermott's Chairman, President and Chief Executive Officer; and Perry Elders, our Senior Vice President and Chief Financial Officer.

Before I hand the call over to Steve, let me remind you that this event is being recorded and a replay will be available for a limited time on our website. In addition, some of our comments this morning will include forward-looking statements and estimates, including with regard to our view of 2012. These forward-looking comments are subject to various risks and uncertainties and they reflect management's views as of March 1, 2012. Please refer to our filings with the Securities and Exchange Commission, which are available on our website, including the recently-filed Form 10-K for the year ended December 31, 2011, and yesterday's 8-K, which provide a discussion of factors that may cause actual results to differ from management's projections, forecast, estimates and expectations.

And please note that except to the extent required by applicable law, McDermott undertakes no obligation to update any forward-looking statement. Let me now turn the call over to Steve Johnson, McDermott's Chairman, President and CEO, for his remarks on our fourth quarter results, the full year and his views on the business and operational environment.

Stephen M. Johnson

Thanks, Jay, and good morning, everyone. To state the obvious, our fourth quarter was disappointing. The Atlantic projects in Mexico and Brazil, that also impacted our third quarter, offset otherwise good performance on the rest of our project portfolio. My objective this morning is to provide an overview of the quarter, the challenges we faced on the lost projects and probably more importantly, our outlook for the coming year. There's an important positive to this story. We don't anticipate full year 2012 to look like the second half of 2011. With the loss projects, we have one advantage with the fourth quarter results and the later reporting cycle, in that we are able to reflect the actual experience we had on these projects during January and February of 2012 into yesterday's reported financial statements.

Also, in our press release yesterday, we indicated that at this time, we view the current range of analyst estimates as reasonable book-ends for your expectations of McDermott this year. Our plan is right in that range and we believe it's achievable. For your modeling, we expect the first quarter to be the low point of 2012, with the improvement to come in subsequent periods. But before getting too far ahead, let me return my comments to a review of yesterday's news. I'll let Perry cover the financials and the details thereof shortly. But as pointed out, we had a number of items going both ways in the fourth quarter.

In total, the net impact was about $66 million negative. None of the items had a taxable impact, so the operating income effect dropped straight to the bottom line. Clearly, the 2 major negatives were the Atlantic projects that we discussed in some detail in late October. They represent over 90% of the gross charges this quarter, so they are worth talking about further. As you may recall, both our marine projects entered into during 2011 that are utilizing previously-idled vessels, and the work on this projects hadn't begun as of the third quarter last year. Beyond that, the issues are largely unique to each project so let me take them one at a time.

The largest negative impact this quarter was the pipelay project in Mexico under contract to PEMEX. In addition to our DB16 vessel, we also have a subcontracted dynamically-positioned support vessel working with us. As you may recall, the project was awarded in the early spring of 2011 and we were expecting to complete it by the fall of that year. Before the difficult weather that is characteristic of the winter months, unfortunately, we experienced delays beginning the project due to a summer tropical storm, combined with customs clearance and site access issues in Mexico. This delay moved the project into challenging weather months. As such, in our third quarter results, we increased the expected marine days necessary to complete the job by over 50% for our DB16 pipeline barge.

However, in late October 2011, our vessel still hadn't begun pipelay work. We started in mid-November. And as it turns out, the weather we experienced was worse than the third quarter forecast. Further, the repeated starting and stopping associated with the weather downtime resulted in productivity at subpar levels. With actual time and experience now under our belts on the project, we have again increased the days expected to be necessary to finish out this project. This time, more substantially reflecting our actual experience on the project through mid-February, as well as our expectations for the remainder of the project.

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