Tags: Shaw | seeks | return | profits

Shaw Seeks Return to Profits Despite Volatility

By    |   Thursday, 22 March 2012 09:02 AM

Shaw Group (SHAW) is an integrated specialty contractor trying to return to making profits this year despite the volatility inherent in its project-based businesses.

Shaw is a major contractor providing construction, engineering, fabrication and related services to such clients as oil companies, electric utilities and industrial corporations. Among its many other businesses, Shaw also owns 20 percent of two companies that provide design services and equipment for developers of nuclear power plants.

The Baton Rouge, La., company employs about 27,000, including part-timers and temporary staff. It has more than two dozen offices, fabrication facilities and manufacturing plants located in the United States and beyond, in such locations as the Abu Dhabi in the United Arab Emirates and Maracaibo, Venezuela.

Intellectual property, including technologies for induction pipe bending and environmental decontamination, provide Shaw's current competitive edge. J.M. Bernhard, the company's chairman and chief executive officer, co-founded Shaw with colleagues in 1986 as a shop specializing in pipe fabrication.

Shaw faces considerable competition in each segment of its business. For example, the company competes with Bechtel, Black & Veatch, Fluor (FLR) and Jacobs Engineering Group (JEC) in the development of power plants.

Shaw reported net income of $50 million in the fiscal first quarter, ended Nov. 30, a turnaround from a net loss of $15 million in the same period in 2010. Revenue in the three-month period declined to $1.51 billion from $1.54 billion the year before.

Shaw serves markets that are cyclical in nature, and its volatile bottom line took a big hit last year. The company had a net loss of $175 million in fiscal 2011, ended Aug. 31, following up-and-down earnings of $82 million the year before, $12.8 million in fiscal 2009 and $140.7 million in fiscal 2008.

In late 2011, Moody's Investors Service analysts affirmed the agency's Ba1 corporate family rating and Ba1 senior unsecured rating for Shaw. But Moody's analysts Darren M. Kirk and Donald S. Carter in the firm's Toronto office also changed the rating outlook for Shaw to stable from positive, citing problems in executing contracts on time and within budget.

Execution risks

Kirk and Carter wrote in their Nov. 9 report that Shaw faces "significant project execution risks associated with its fixed-price construction contracts coupled with the company's thin operating margin and meaningful cyclical exposure."

The Moody's analysts also described Shaw's balance sheet as "solid" and its order backlog "significant" and said the company sustains a "strong market position as a leading contractor to an assortment of end markets."

Shaw will report its fiscal second quarter results March 29.

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