Offshore oil and gas-focused engineering and construction firm, McDermott International (MDR), reported weak second-quarter 2013 results, owing to lower activities in the Middle East and Asia Pacific regions. This was however partially offset by stronger operations in the Atlantic region, along with decreased expenses.
Loss per share from continuing operations came in at 63 cents, against the Zacks Consensus Estimate of a profit of 3 cents. In the year-ago quarter, McDermott reported earnings of 22 cents per share.
McDermott generated revenues of $647.3 million in the quarter, down 27.2% from the second quarter of 2012 and also failed to beat the Zacks Consensus Estimate of $758.0 million.
Total costs and expenses decreased marginally by 2.0% to $791.3 million from the corresponding period last year.
Backlog
At the end of the second quarter of 2013, McDermott had a backlog of $5,090.9 million, compared with $5,746.7 million a year ago.
Balance Sheet
As of Jun 30, 2013, McDermott had cash/cash equivalents of $427.7 million and long-term debt (including current maturities) of approximately $95.6 million (representing a debt-to-capitalization ratio of approximately 5.1%).
Zacks Rank
McDermott currently retains a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.
McDermott derives its revenues from companies in the oil and gas exploration and production (E&P) industry, a highly volatile and cyclical sector that is directly exposed to commodity prices. A potential drop in oil and gas prices could restrict/limit deepwater drilling and dampen subsea equipment demand, adversely affecting bookings at McDermott.
Moreover, McDermott has historically used bolt-on acquisitions to plug holes in its product/service portfolio. The company may find it difficult to complete accretive transactions in the future, which could negatively impact its growth rate.
Meanwhile, one can look at oil field machinery and equipment suppliers like Dril-Quip Inc. (DRQ), Natural Gas Services Group Inc. (NGS) and USA Compression Partners LP (USAC) that offer value. Dril-Quip and Natural Gas Services Group retain a Zacks Rank #1 (Strong Buy), while USA Compression Partners sports a Zacks Rank #2 (Buy).
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