Shaw Group's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Shaw Group (SHAW)

Q2 2012 Earnings Call

March 29, 2012 9:00 am ET

Executives

Gentry Brann - Vice President of Investor Relations and Corporate Communications

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

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

Analysts

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

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

Steven Fisher - UBS Investment Bank, Research Division

Brian Konigsberg - Vertical Research Partners Inc.

Jamie L. Cook - Crédit Suisse AG, Research Division

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

Andy Kaplowitz - Barclays Capital, Research Division

Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Tristan Richardson - D.A. Davidson & Co., Research Division

Richard Roy - Citigroup Inc, Research Division

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

Presentation

Operator

Welcome to the Shaw Group Inc. Second Quarter Fiscal Year 2012 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 Ms. Gentry Brann. Ms. Brann, you may begin.

Gentry Brann

Thank you, John. Good morning, everyone, and welcome to Shaw's Second 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'll be referencing the slides that are available on our website, www.shawgrp.com. But we are having a few little technical issues with the Investor Relations page. So if you're not able to access the slides there, they are posted on the homepage of our website, and you should be able to access all of the information directly from the homepage.

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

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

J. M. Bernhard

Good morning. Our results this quarter were driven by strong operational performance in our Plant Service, Environmental & Infrastructure and Fabrication & Manufacturing segments, as well as our nuclear contracts. Last quarter, Arizona Public Service awarded us a contract for our nuclear maintenance services. This quarter, they awarded us a new contract for maintenance services of their 8 fossil plants. Our Plant Service segment has continued to show strong growth and is now a major entry into these fossil plant nuclear -- fossil plant maintenance business.

Also, as most of you know, Southern Company received a COL for plant Vogtle in February. The NRC is scheduled to vote on SCANA's COL tomorrow. The COL enables us to begin the majority of the construction at the site. Both companies expected these to come earlier this year. So there's a slight delay in the ramp up of work at the sites.

The regulatory design changes and delay in getting the COLs created additional costs at both projects. Because there were additional costs, the project percent completion calculation changed, which had an adverse effect of the quarter of approximately $8.3 million or $0.08 per share. However, this is just related to timing. And we believe the increased costs are recoverable from our clients. We have in fact already reached a preliminary agreement with SCANA.

Our Power segment was negatively impacted by net cost increase of approximately $7.6 million or $0.16 per share of 2 coal projects that are nearing completion, while the balance of the projects performs well. I know many of you are expecting announcement on the E&C sale. And as we have previously -- we have received offers from potential acquirers. Due diligence has been going quite well and we expect to have a decision in the third quarter, and completion of the transaction by the fourth quarter.

Finally, this quarter, we recognized a foreign exchange translation gain in our Westinghouse segment of approximately $51.5 million pretax. Now let me turn it over to Brian for a review of our financials.

Brian K. Ferraioli

Thank you, Jim, and good morning, everyone. Turning to Slide 4. We have the typical format we usually speak to. The first column includes our as-reported or our Generally Accepted Accounting Principles results, which include the $51.5 million pretax gain from foreign exchange on Westinghouse that Jim already referred to.

We look at the column, the shaded column, the excluding Westinghouse column, as [indiscernible] reflective of our underlying operations. So if you look at the revenues, year-over-year they're up slightly about 3.5%. If you look at the gross profit percentage and the earnings, they are down slightly year-over-year. But I remind you in 2011, we had a $23 million pretax gain associated with an arbitration award, $20 million of which was in gross profit and about $3.8 million of which was included in interest income. So when you compare year-over-year, excluding that gain from 2011, we're up. If you look at the earnings per share, the $0.78, including the foreign exchange gain, $0.46, excluding the Westinghouse component, again, up over the prior year.

Cash flow was slightly negative as expected for the quarter at $9.5 million on a consolidated basis and $18.1 million, excluding the Westinghouse segment. This was again as expected. We anticipate the second half of the year will be cash positive, and especially the fourth quarter. And the cash reflects some working capital, favorable working capital positions on some of the coal projects that are reversing as the projects near completion and the cash balance runs down to the earnings on those individual projects.

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