Babcock & Wilcox Reports Earnings Drop for First-Quarter 2014, but Expects Boon from Environmental Regulations

---

Researched by Industrial Info Resources (Sugar Land, Texas)--Following the completion of several major projects in 2013, energy services provider The Babcock & Wilcox Company (NYSE:BWC) (B&W) (Charlotte, North Carolina) reported overall declines in income and revenue in first-quarter 2014, as the company saw lower demand and general uncertainty surrounding environmental projects. Net income was reported to be $45.04 million, a 4.52% decrease from first-quarter 2013.

Total revenues stood at $662.02 million, a 17.81% decrease from the same period last year. Fewer projects related to environmental retrofits, as well as uncertainty surrounding future regulations, led to an $85.7 million drop in revenues, which was more than half of the Power Generation segment's $149.4 million decline. B&W also incurred a $7.6 million charge related to a biomass plant project and $2.7 million in charges related to cost-reduction efforts, including restructuring spurred by the Global Competitiveness Initiative.

The Nuclear Operations segment reported record revenues and earnings for a first quarter, attributed to improved productivity and stronger demand for component manufacturing from U.S. government projects. However, it was the only segment to report revenue gains when compared with first-quarter 2013.

Capital expenditures were reported to be $21.21 million for the quarter, compared with $18.8 million in first-quarter 2013.

Industrial Info is tracking more than $6.5 billion in active projects involving B&W, including the 30-year life extension of a coal unit at the Boundary Dam Power Station, which is south of Estevan, Saskatchewan. The total investment value of the extension is $1.24 billion. The project involves extending the life of Unit 3 by rebuilding the coal-fired boiler and replacing the 150-megawatt GE Tandem compound steam turbine generator with a new, 160-megawatt Hitachi steam turbine. SaskPower (Regina, Saskatchewan), the owner of the plant, also is extending the life of the carbon capture and storage equipment, and is installing auxiliary equipment. Babcock & Wilcox Canada Limited (Cambridge, Ontario) is serving as a contractor on the project.

In a quarterly conference call, James Ferland, the president and chief executive officer of B&W, said that the company has identified more than $50 million of commercial project opportunities and expects to see gradual improvement in the Power Generation segment throughout 2014. In particular, B&W executives predict stronger demand internationally for boiler projects and services during the second quarter, as well as stronger demand domestically for projects related to environmental regulations.

"The implementation of various corporate initiatives--and the market developments that will benefit [the Power Generation segment] in the coming periods--give us reason for modest optimism," Ferland said. "Starting with the Supreme Court ruling a couple of weeks ago, the court reinstated CSAPR, overturning a D.C. Circuit ruling that vacated the environmental regulations intended to improve air quality in states downwind of power plants. While there is reason for optimism for B&W environmental business, based upon the court's ruling, there's a lot yet to be determined regarding its impact, with respect to both timing and requirements. For example, the timing has yet to be set by the Circuit Court, and the rules have yet to be determined by the [U.S. Environmental Protection Agency].

"Each client will make different decisions at each plant site, based upon their particular strategy, energy portfolio and investment approach. Our macro view is that any operating coal unit in the U.S. eventually will have environmental control equipment as part of its equipment train, whether it's a scrubber, an injection system, an SCR, a particulate control system, or some combination of all. We believe this will occur by 2020."

For more information, see May 1, 2014, article - Upholding CSAPR Could Deal Further Blow to Power Generating Fuel Diversity. Ferland added that the company was keeping an eye on the greenhouse gas regulations for existing coal plants that are set to be released this summer.

Ferland downplayed expectations for the mPower light water reactor, which the company had been developing in a joint venture with Bechtel (San Francisco, California). He said that the "various actions" needed to restructure the program should be accomplished by the end of the second quarter.

"Without additional investors or [engineering, procurement and construction] contracts from customers to provide the financial support necessary to develop and deploy the mPower reactors, we must slow our pace of development," Ferland said in the conference call. "In April, we announced that mPower spending will be reduced to an annual run-rate of not to exceed $15 million beginning July 21, 2014, and that we would be working with the U.S. Department of Energy and other stakeholders to confirm the best path forward."

B&W recently announced that subsidiary Babcock & Wilcox Power Generation Group Incorporated signed a definitive agreement to acquire industrial processes solutions provider MEGTEC (De Pere, Wisconsin) for $155 million. MEGTEC, which operates in 10 countries, will become B&W MEGTEC, a subsidiary of the Power Generation segment. The purchase is expected to be completed by June 30.

For more information, visit Industrial Info's North American Power Project Database and North American Industrial Manufacturing Project Database.

View Plant Profile - 2003136
View Project Report - 55000460

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.