Foster Wheeler Ltd. (FWLT): Reports strong 3Q2007 results
Goldman Sachs - November 7th, 2007
News
Foster Wheeler (FWLT) reported better-than-expected 3Q2007 earnings of $1.78 versus the consensus estimate of $1.38 and our estimate of $1.32. Adjusting for one-time gains relating to asbestos receivables, the company reported EPS of $1.66.
Analysis
Foster Wheeler's impressive 3Q2007 results were driven by strong top-line growth and equity earnings from joint ventures. Revenue grew 43% yoy vs. the consensus expectation of 39% yoy. In addition, Foster Wheeler reported equity earnings from JV's of ~$23 mn for 3Q2007, more than doubling equity earnings from 1H2007. The strong equity earnings were bolstered by solid operating margins from a power project in Chile. New award growth: Solid new awards for the quarter at $1.9 bn, especially considering the Pluto LNG project (which Foster Wheeler is expected to win) was not included in backlog. We still expect the company to be the primary EPC contractor on the Pluto LNG project. Quality of earnings: Tax rate came in lower than expected at 22% compared to our expectation of 28%. This had a ~$0.13 impact on earnings. However, nine months into the year, it appears that Foster Wheeler will incur a lower tax burden than we previously anticipated. And while other income is higher than we expected, this activity is still core to the business, as it represents ongoing joint ventures and interest income on the company's ballooning cash balance.
Implications
We expect FWLT shares to be up on the back of the earnings beat, strong new awards, and the fact that the shares traded down significantly into the quarter results. Foster Wheeler's results strengthen our resolve to be long selective E&C names at this time. Our favorite E&C stocks continue to be Foster Wheeler, Jacobs Engineering, and CB&I--all three of which beat earnings expectations this quarter. |
