A month has gone by since the last earnings report for Chicago Bridge & Iron Company N.V. . Shares have lost about 8.7% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Chicago Bridge & Iron Q4 Earnings Miss on Weak Sales
Chicago Bridge & Iron posted a massive earnings miss in its fourth-quarter 2016 results, as adjusted earnings of $0.85 per share missed the Zacks Consensus Estimate of $1.48 by 42.6%.
The bottom line didn’t fare much better in year-over-year comparison either, having plummeted 32.5% from the adjusted earnings figure of $1.26 per share reported in the year-ago quarter. Profits were badly hurt as the company booked a pre-tax non-cash goodwill impairment charge of roughly $655 million in the quarter to account for the sale of its Capital Services business.
For full-year 2016, adjusted earnings fell 8.8% from the prior-year’s tally to $4.23 per share.
Inside the Headlines
The company reported fourth-quarter 2016 revenues of $2,540 million, missing the Zacks Consensus Estimate of $2,731 million. Further, revenues plunged a whopping 22.4% year over year. The lackluster top-line performance during the quarter was largely a result of revenue declines across nearly all of the company’s segments.
For the full year, revenues declined 17.4% year over year to $10.7 billion.The decline was primarily attributable to delays in several project awards, which the company had anticipated, would generate about 25% of the company’s revenues for the year.
Fourth-quarter gross profit slumped 69.2% year over year to $117.4 million, while gross margin contracted by a massive 700 basis points to 4.6%. Margins were deeply affected by charges for material increases in cost-to-complete estimates in the company’s Engineering & Construction and Fabrication Services segments.
Adjusted operating income for the quarter came in at $34.6 million, down 85% year over year.
The company booked new awards worth $1,391 million during the quarter, compared with $3,254 billion in the prior-year quarter. The decline in new award wins was largely attributable to delays in several cautionary spending on part of the large clients who continue to defer investments due to softness in energy markets.
Segmental Revenues
Revenues from the Engineering and Construction segment came in at $1,386 million, down 8.3% on a year-over-year basis, mainly due to the absence of revenues from the divested nuclear operations business line. New awards in this segment were $325.6 million in the quarter, reflecting a humongous decline of 81.7% from the comparable quarter last year.
Fabrication Services quarterly revenues totaled $553 million, almost flat year over year. New awards received by this segment dropped (down 14.6%) to $421.6 million at the end of the fourth quarter compared with $493.8 million in the prior-year quarter.
Technology revenues were down 26.7% year over year to $64.9 million. Also, this segment won over $168.7 million of new contracts in the quarter, reflecting a decline of nearly 47.6% year over year.
Capital Services revenues fell 13.1% year over year to $535.9 million. Further, new contracts received by this segment plunged 28% to $475.6 million in the quarter.
Liquidity
Chicago Bridge & Iron’s cash and cash equivalents as of Dec 31, 2016 came in at $505.2 million compared with $550.2 million a year ago. Net cash generated from operating activities in the year ended Dec 31, 2016 came in at $654.5 million, a remarkable turnaround from the net cash used in operating activities of $56.2 million in the comparable period last year. Net long-term debt was $1,288 million at year end compared with $1,792 million as of Dec 31, 2015.
Divestiture of Capital Services Business
Concurrent with the earnings release, Chicago Bridge & Iron entered into a definitive agreement to sell its Capital Services business to an affiliate of the private equity investment firm Veritas Capital for $755 million in cash. The deal is expected to conclude in second-quarter 2017.
To account for the sale, the company booked a pre-tax non-cash goodwill impairment charge of roughly $655 million in fourth-quarter 2016.
The sale is part of the company’s efforts to realign its business with its long-term strategy, and realize cost synergies. The divestiture will generate significant cash proceeds, which Chicago Bridge & Iron will use to reduce its outstanding debt.
Share Repurchase
Chicago Bridge & Iron returned $235 million to its shareholders through stock repurchases and dividends in the year 2016.
Guidance
Chicago Bridge & Iron provided its guidance for full-year 2017. The company estimates revenues in the range of $9.5–$10.5 billion, of which about 80% was already in its 2016 year-end backlog. In addition, diluted earnings per share are projected in the band of $4.00–$4.60 per share.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been two downward revisions for the current quarter compared to one upward.
VGM Scores
At this time, Chicago Bridge & Iron's stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the stock is suitable for value and growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. It's no surprise that the stock is a Zacks Rank #5 (Strong Sell). We are expecting a below average return from the stock in the next few months.
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Chicago Bridge & Iron (CBI) Down 8.7% Since Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Chicago Bridge & Iron Company N.V. . Shares have lost about 8.7% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Chicago Bridge & Iron Q4 Earnings Miss on Weak Sales
Chicago Bridge & Iron posted a massive earnings miss in its fourth-quarter 2016 results, as adjusted earnings of $0.85 per share missed the Zacks Consensus Estimate of $1.48 by 42.6%.
The bottom line didn’t fare much better in year-over-year comparison either, having plummeted 32.5% from the adjusted earnings figure of $1.26 per share reported in the year-ago quarter. Profits were badly hurt as the company booked a pre-tax non-cash goodwill impairment charge of roughly $655 million in the quarter to account for the sale of its Capital Services business.
For full-year 2016, adjusted earnings fell 8.8% from the prior-year’s tally to $4.23 per share.
Inside the Headlines
The company reported fourth-quarter 2016 revenues of $2,540 million, missing the Zacks Consensus Estimate of $2,731 million. Further, revenues plunged a whopping 22.4% year over year. The lackluster top-line performance during the quarter was largely a result of revenue declines across nearly all of the company’s segments.
For the full year, revenues declined 17.4% year over year to $10.7 billion.The decline was primarily attributable to delays in several project awards, which the company had anticipated, would generate about 25% of the company’s revenues for the year.
Fourth-quarter gross profit slumped 69.2% year over year to $117.4 million, while gross margin contracted by a massive 700 basis points to 4.6%. Margins were deeply affected by charges for material increases in cost-to-complete estimates in the company’s Engineering & Construction and Fabrication Services segments.
Adjusted operating income for the quarter came in at $34.6 million, down 85% year over year.
The company booked new awards worth $1,391 million during the quarter, compared with $3,254 billion in the prior-year quarter. The decline in new award wins was largely attributable to delays in several cautionary spending on part of the large clients who continue to defer investments due to softness in energy markets.
Segmental Revenues
Revenues from the Engineering and Construction segment came in at $1,386 million, down 8.3% on a year-over-year basis, mainly due to the absence of revenues from the divested nuclear operations business line. New awards in this segment were $325.6 million in the quarter, reflecting a humongous decline of 81.7% from the comparable quarter last year.
Fabrication Services quarterly revenues totaled $553 million, almost flat year over year. New awards received by this segment dropped (down 14.6%) to $421.6 million at the end of the fourth quarter compared with $493.8 million in the prior-year quarter.
Technology revenues were down 26.7% year over year to $64.9 million. Also, this segment won over $168.7 million of new contracts in the quarter, reflecting a decline of nearly 47.6% year over year.
Capital Services revenues fell 13.1% year over year to $535.9 million. Further, new contracts received by this segment plunged 28% to $475.6 million in the quarter.
Liquidity
Chicago Bridge & Iron’s cash and cash equivalents as of Dec 31, 2016 came in at $505.2 million compared with $550.2 million a year ago. Net cash generated from operating activities in the year ended Dec 31, 2016 came in at $654.5 million, a remarkable turnaround from the net cash used in operating activities of $56.2 million in the comparable period last year. Net long-term debt was $1,288 million at year end compared with $1,792 million as of Dec 31, 2015.
Divestiture of Capital Services Business
Concurrent with the earnings release, Chicago Bridge & Iron entered into a definitive agreement to sell its Capital Services business to an affiliate of the private equity investment firm Veritas Capital for $755 million in cash. The deal is expected to conclude in second-quarter 2017.
To account for the sale, the company booked a pre-tax non-cash goodwill impairment charge of roughly $655 million in fourth-quarter 2016.
The sale is part of the company’s efforts to realign its business with its long-term strategy, and realize cost synergies. The divestiture will generate significant cash proceeds, which Chicago Bridge & Iron will use to reduce its outstanding debt.
Share Repurchase
Chicago Bridge & Iron returned $235 million to its shareholders through stock repurchases and dividends in the year 2016.
Guidance
Chicago Bridge & Iron provided its guidance for full-year 2017. The company estimates revenues in the range of $9.5–$10.5 billion, of which about 80% was already in its 2016 year-end backlog. In addition, diluted earnings per share are projected in the band of $4.00–$4.60 per share.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been two downward revisions for the current quarter compared to one upward.
Chicago Bridge & Iron Company N.V. Price and Consensus
Chicago Bridge & Iron Company N.V. Price and Consensus | Chicago Bridge & Iron Company N.V. Quote
VGM Scores
At this time, Chicago Bridge & Iron's stock has a strong Growth Score of 'A', though it is lagging a lot on the momentum front with an 'F'. However, the stock was allocated a grade of 'A' on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'A'. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the stock is suitable for value and growth investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. It's no surprise that the stock is a Zacks Rank #5 (Strong Sell). We are expecting a below average return from the stock in the next few months.