Changing Industry Dynamics Bring Mixed Results for Shaw Group's Second-Quarter 2012 Earnings

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Shaw Group (NYSE:SHAW) (Baton Rouge, Louisiana) yesterday reported earnings results for the company's second quarter of the 2012 fiscal year, which ended February 29, 2012. Discounting Shaw's Japanese yen-based investment in Westinghouse, which the company intends to sell back to Toshiba, the company reported net income of $30.8 million for the quarter, compared to $35 million in 2Q11.

Of the company's business segments, Shaw's Plant Services segment walked away as the big winner for the quarter with revenues of $323.7 million, compared to $200 million from the same quarter of last year. As regulatory uncertainty has put a damper on many major new-build construction projects, Shaw continues being a market leader in nuclear maintenance and is making a seemingly successful attempt to grow its footprint in the fossil-fueled maintenance sector. Much of the additional income for the Power Services segment is attributable to services performed at additional nuclear power plants during the quarter. In a conference call regarding the earnings, Chief Financial Officer Brian K. Ferraioli stated that Shaw had conducted seven nuclear plant outages during the period, compared with three in the previous year.

After receiving a nuclear maintenance contract from Arizona Public Services Company (APS), the wholly owned utilities subsidiary of Pinnacle West Capital Corporation (NYSE:PNW) (Phoenix, Arizona), in the first quarter of the 2012 fiscal year, APS awarded Shaw maintenance contracts for its for its eight fossil-fuelled plants in the second quarter. Speaking of Shaw's Plant Services segment, Shaw President and CEO J.M. Bernhard said: "We anticipate over the next 12 months on gaining additional market share in the nuclear business, and as we continue to enter the fossil maintenance business, we have great expectations for that business. The opportunities there are very significant."

Shaw's Engineering & Infrastructure (E&I) and Fabrication & Manufacturing (F&M) segments also showed increased revenues for the quarter. Quarterly revenues for the E&I segment were $412.6 million, an increase from last year's $390.2 million. The F&M segment showed a strong 26% increase in revenue, rising from $116.1 million in 2Q11 to $146.6 million in 2Q12. "Fab & Manufacturing are seeing opportunities with refinery expansions. We still anticipate power opportunities related to EPA regulations in the next 12 to 18 months on the AQCS (air quality control systems) work," said Bernhard. "The AQCS work over the next 12 to 18 months, as we've talked about, should be very robust on awards, as well as new gas plants, as the tremendous influence of the ability to use natural gas using fracking techniques penetrates the power market in the U.S."

Shaw's Power segment suffered during the quarter, showing a year-over-year decline in revenue of more than $100 million. Power segment revenues in 2Q12 were $450.7 million, compared to $558.3 million in the corresponding period of the previous year. Bernhard said that the segment was negatively impacted by a $7.6 million increase in field construction costs for two coal-fired plants, as well as delays in receiving the combined operating licenses (COLs) from the Nuclear Regulatory Commission (NRC) for Southern Company's (NYSE:SO) Vogtle units 3 & 4 expansion project and SCANA Corporation's (NYSE:SCG) V.C. Summer units 2 & 3 expansion. The Southern Company received the COL for Vogtle in February, while the NRC is scheduled to vote on SCANA's COL today (March 30).

Discussing the impact of the projects on Shaw's Power segment, Bernhard said: "The COL enables us to begin the majority of the construction at the site. Both companies expected these to come earlier this year, so there's a slight delay in the ramp-up of work at the sites. The regulatory design changes and delay in getting the COLs created additional costs at both projects. Because there were additional costs, the project percent completion calculation changed, which had an adverse effect to the quarter of approximately $8.3 million, or $0.08 per share. However, this is just related to timing. And we believe the increased costs are recoverable from our clients. We have, in fact, already reached a preliminary agreement with SCANA."

On Monday, March 26, Shaw announced that it had received full notice to proceed with construction of Entergy Corporation's (NYSE:ETR) (New Orleans, Louisiana) combined-cycle gas turbine (CCGT) plant at the company's existing Ninemile Point Power Station in Westwego, Louisiana. Shaw was awarded the EPC contract for the project in June 2011. The estimated $721 million project will add 550 megawatts of combined-cycle power to Entergy's generating portfolio. The plant is expected to begin commercial operations in early 2015. Information on this and other Shaw projects is available in Industrial Info's North America and Global Industrial Project Databases.

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