McDermott International Posts Huge Surprise Loss

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McDermott International (NYSE: MDR) reported fourth quarter and full-year 2013 results after markets closed Monday. The offshore oilfield engineering and construction firm posted a diluted earnings per share (EPS) loss of $1.37 per share on revenues of $517.34 million. For the fourth quarter of 2012 the company posted EPS of $0.17 on revenues of $995.95 million. Fourth-quarter results compare to the Thomson Reuters consensus estimates for a earnings of $0.15 a share and $825.61 million in revenues.

For the full year McDermott posted an EPS loss of $2.19 on revenues of $2.8 billion compared with EPS of $0.87 on revenues of $3.64 billion in 2012. The consensus estimates called for an EPS loss of $0.67 on revenues of $2.96 billion.

McDermott’s large and unexpected loss in the fourth quarter was due to a review of what new CEO David Dickson referred to as “legacy issues.” Among other charges company wrote off $91 million in unapproved change orders on two projects and $28 million on a delayed project in Malaysia.

The company also noted that its project backlog increased from $4.6 billion at the end of September to $4.8 billion at the end of December. Other than that, McDermott said it is withdrawing prior financial guidance and suspending guidance for the foreseeable future while the Company is implementing its organizational changes and closing out legacy projects. The consensus estimates for the first quarter call for EPS of $0.05 on revenues of $764.11 million.

The company’s CEO said:

McDermott is at a strategic inflection point, and we are making good progress toward improving our internal processes and risk management. We secured a new financing commitment to enhance our financial flexibility and are increasing operational efficiency through a new organizational design, while taking the necessary steps to deliver improved and predictable execution. Driving profitability and cash flow remains our top priority, and we are reevaluating our capital expenditures, reducing our cost structure and exploring the divestiture of non-core assets to achieve that goal.

Shares are down about 10% in after-hours trading, at $7.35 in a 52-week range of $6.68 to $11.59. Thomson Reuters had a consensus target price for the shares at around $8.80 before today’s report.