Shares of Chicago Bridge & Iron Co. plunged on heavy volume to an 8-year low, as the energy infrastructure services firm was forced to take “decisive action” to bolster its financial position after reporting a large surprise loss and slashing its outlook.
The actions come after CB&I said late Wednesday that it would haven’t been in compliance with certain debt covenants at the end of June without amendments to its credit agreements.
“We are implementing a comprehensive corporate and operating cost reduction program, which we expect will generate savings of $100 million on an annualized basis,” said Chief Executive Patrick Mullen late Wednesday in a post-earnings conference call with analysts, according to a transcript provided by FactSet. “We are committed to continuing to take decisive action to put CB&I on a more sound, long-term footing.”
Mullen assumed the CEO role effective July 1, after former CEO Philip Asherman announced his retirement in May.
tumbled $4.36, or $27%, to the lowest closing price since July 2009. It suffered the second-biggest percentage decline since it went public in March 1997. The biggest selloff was 31% on Feb. 25, 2009. Volume was 32.8 million share, or five times the full-day average.
Among the actions taken, Mullen said the company was pursuing the sale of its technology business, and plans to use the proceeds to pay down debt and reinvest in its remaining businesses. He said in the call with analysts that he is looking for a valuation of more than $2 billion for the technology business.
Analyst Sameer Rathod said he believed the technology business was the “crown jewel” for CB&I. And given that the company was being forced to sell the business “to stay alive,” the company’s expected valuation may be a stretch.
“Given that this is a distress sale, in our view,…any potential buyer would be able to get the business at a discount compared to what the company wants for it,” Rathod wrote in a note to clients.
The company said it was suspending its quarterly dividend, effectively immediately, which is expected to result in cash savings of $28 million to $30 million. The last quarterly dividend paid was 7 cents a share on June 30.
The actions were announced as the company reported a second-quarter net loss of $425.4 million, or $4.22 a share, after a profit of $123.8 million, or $1.17 a share, in the same period a year ago. Excluding discontinued operations, the loss of $3.02 a share compares with analyst expectations of a profit of 48 cents, according to FactSet.
Revenue fell to $1.28 billion from $2.16 billion, which was just a little more than half the FactSet consensus of $2.47 billion.
The engineering and construction business was particularly weak, with revenue falling to $702.2 million from $1.5 billion, due primarily to the wind-down of a large cost-reimbursable liquefied natural gas (LNG) project in the Asia-Pacific region, and lower revenue from two U.S.-based LNG projects.
The technology business, which offers licensed process technologies to the hydrocarbon industries and equipment for use in petrochemical facilities, oil refineries and gas processing plants, reported revenue growth of 13% to $72.8 million.
The company now expects second half revenue of $3.7 billion to $4.0 billion and earnings of $1.00 to $1.25 a share. Combined with first-half revenue of $3.11 billion, the implied 2017 outlook of $6.81 billion to $7.11 billion was well below previous revenue guidance of $9.5 billion to $10.5 billion.
Despite the record drop in CB&I’s stock, Macquarie’s Rathod believes it could still fall further. He reiterated his underperform rating and cut his stock price target to $10, which is 11% below current levels, from $14.
“We still do not find the risk-reward favorable for the stock, given the large amount of fixed-price risk the company continues to hold, which was likely signed when the company needed advance payables,” Rathod wrote. “Additionally, the company is likely to lose top engineering talent to competitors, face tougher negotiations from any potential clients, all the while still facing an anaemic hydrocarbon end-market.”
The stock has now lost 62.3% year to date, while the SPDR Energy Select Sector exchange-traded fund
has shed 14.6% and the S&P 500 index
has gained 8.9%.
View more information: https://www.marketwatch.com/story/chicago-bridge-irons-stock-plunges-as-company-takes-action-to-stay-alive-2017-08-10