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Babcock & Wilcox Report Mixed 1Q 2014 Results

Babcock & Wilcox Report Mixed 1Q 2014 Results

Babcock & Wilcox reported mixed first quarter 2014 results, in our view, with strong operating results and awards in nuclear operations mitigated by weak results in power generation; adjusted EPS were $0.42, in line with the consensus and modestly above our $0.39 estimate; however, a lower tax rate added roughly $0.04 compared with our forecast. As mentioned, the positive in the quarter was nuclear operations, which posted robust 10% revenue growth (we projected 2%) and a 20.8% operating margin, well above our 18.5% forecast.

In the power generation business, the company continues to make progress with its global competitiveness initiative (GCI) and has identified incremental savings of more than $50 million (GCI savings are expected to be at least $75 million by mid-2015). Despite progress with GCI, weaker power generation revenue and timing of profit recognition in the quarter pressured the segment s operating margin, which was compounded by an incremental $7.6 million charge (roughly $0.05 per share) on a legacy biomass project.

The company maintained its revenue and EPS forecast for the year, which we expect to get more detail on (tax rate, share repurchase, segment detail, etc.) on the company s 8:30 a.m. Eastern conference call Tuesday, May 13. Other key topics for the conference call include end-market outlooks (particularly in power generation), capital allocation, insight into incremental cost savings, and commentary related to the biomass project charge.

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Babcock & Wilcox s first quarter 2014 adjusted EPS were $0.42, in line with the consensus and ahead of our $0.39 estimate (adjusted EPS exclude the impact of mark-to-market adjustments for pension and postretirement plans, restructuring costs, noncash impairment charges, and certain discrete tax adjustments).

Relative to our estimate, the modestly better EPS performance was attributable to a lower-than-expected tax provision (added roughly $0.04 to EPS), strong nuclear operations revenue and earnings, and lower corporate expenses, which offset weaker-than-expected power generation revenue and earnings.

Babcock & Wilcox Report Mixed 1Q 2014 Results

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