Mixed Earnings Review for The Shaw Group
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It is no secret that 2011 was a mixed bag for the heavy construction industry. While some saw the worst of times in 2010, several players in the industry had to take a long look in the mirror to determine an effective strategy back to profitability. Today let us look at The Shaw Group (NYSE: SHAW), who just released its quarterly earnings report on Tuesday.
Despite the 4.8% increase in revenue and good showings in its Plant Services, Environment & Infrastructure, and Fabrication & Manufacturing; Shaw was unable to make up for the failures in its Energy & Chemicals and its investment in Westinghouse Electric Company LLC. At first glance, things do not look good, but this recent kick in the pants appears to be the sign Shaw needed to make some changes which could help bring the company back to profitability.
First of all, it has taken the necessary measures to shed itself of its least profitable segments. In the next quarter, they will finalize the sale of its Energy & Chemicals sector to Technip for $300 million. It also has plans to divest its stake in Westinghouse Electric back to its parent company Toshiba (NASDAQOTH: TOSBF) by March 2013.
Second, it has settled a long standing suit with GenOn Mid-Atlantic LLC (NYSE: GEN). It took a $0.19 per share hit on this quarter from the settlement agreement which will be wiped out and Shaw will receive a $107 million cash settlement from GenOn in this quarter.
These actions alone would have seen Shaw return to the black, but that is simply not enough, let us look at the pipeline to see what is in store.
Domestically, Shaw has secured the contract for the very first nuclear plant to be built in the US in the past 30 years. This is a promising sign as it looks to ramp up its nuclear construction while moving away from coal plant construction (coal plants are much weaker for the margins). Shaw is one of the largest Oil & Gas pipeline fabricators in the US. So with the expansion of natural gas production in the US, Shaw could be well positioned to reap large rewards from the buildup.
Shaw has also made efforts as of late to grow their footprint internationally as well. It has already secured contracts in China and Thailand and it has made inroads with Saudi Arabia’s national electricity provider. These preliminary contracts with the Kingdom could help them take a good slice of the $116 billion Saudi Arabia looks to spend on upgrading its electricity infrastructure over the next 20 years (3 new nuclear plants up for bid in 2013, 4 in 2014).
With over $18 billion in its backlog, a diversification into international markets, and a promising pipeline of upcoming projects, it is not too much of a shock that Shaw plans on enacting a $500 million share buyback program by the end of the fiscal year. When management shows that kind of confidence in its future, then it is certainly worth a second look.
Shaw is anything but a darling right now, but it does appear to be putting itself on the right track with some of its current moves. This may be a stock worth checking back with in a few quarters.
TylerCrowe has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.