Shaw Group Gets Boost from Nuclear Projects in Fiscal Third-Quarter 2012, Preps $300 Million Sale of Chemical Segment

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Researched by Industrial Info Resources (Sugar Land, Texas)--Engineering, procurement and construction (EPC) giant The Shaw Group Incorporated (NYSE:SHAW) (Baton Rouge, Louisiana) reported improvements in revenues and gross profits for its fiscal-2011 third quarter as several key projects moved forward. The company agreed to sell almost all of its Energy & Chemicals segment to Technip S.A. (OTC:TNHPF) (Paris, France) for about $300 million in a deal that is expected to be completed in the fiscal fourth quarter. The third quarter saw a net income loss of $16 million, which was lower than the net loss of $69.95 million in fiscal-2011 third quarter.

Total revenues for the quarter stood at $1.56 billion, a 4.75% increase from the same period last year. The Power and Fabrication & Manufacturing segments were boosted by accelerated progress on nuclear projects, which had slowed in previous quarters due to licensing delays. Shaw also gained $107 million in cash proceeds from a June settlement with GenOn Mid-Atlantic LLC regarding a dispute over a July 2007 EPC contract for flue gas desulfurization systems at three power-generating facilities.

However, the Power segment incurred a $6.6 million pre-tax loss that was related to increases in construction costs on a coal-fired power plant that is in its performance testing phase. Shaw's Westinghouse business incurred a $14 million after-tax foreign exchange transaction loss.

During the quarter, Shaw received a green light from SCANA Corporation (NYSE:SCG) (Cayce, South Carolina) to begin work on its V.C. Summer nuclear power project in South Carolina, and agreed to acquire up to 50% of NET Power LLC so it can perform EPC work on NET Power plants. Shaw executives expect the company to invest more than $50 million in cash and in-kind services for NET Power.

Industrial Info is tracking 118 active projects worldwide involving Shaw that are worth a total of more than $102 billion, including the $1.7 million construction of a 600-megawatt (MW) coal-fired power station in Fulton, Arkansas, for AEP-Public Service Company of Oklahoma, a subsidiary of American Electric Power Company (NYSE:AEP) (Columbus, Ohio); and the $711 million construction of a 620-MW natural gas-fired, combined-cycle power station in Eden, North Carolina, for Duke Energy Carolinas LLC, a subsidiary of Duke Energy Corporation (NYSE:DUK) (Charlotte, North Carolina). The Fulton project involves building an ultra-supercritical, pulverized coal-fired Babcock & Wilcox Boiler to drive an Alstom Tandem compound steam turbine generator to supply base-load capacity to the grid, while the Eden project involves building two gas-fired combustion turbine generator sets and a steam turbine generator to supply power to the local grid.

"The quarterly results were driven primarily by our Environmental & Infrastructure, Plant Services and Fabrication & Manufacturing segments, which all three continued to perform very well," said Brian K. Ferraioli, the executive vice president and chief financial officer of Shaw, in a conference call. "However, it was offset by the Energy & Chemicals group; we're divesting that business, and we have incurred a fairly significant amount of costs associated with the winding down and transfer of that business over to Technip."

All of Shaw's major segments, excluding Power, reported improvements in sales and profits for the quarter, with the most noticeable gains in the soon-to-be-sold Energy & Chemicals segment:

• The Power segment reported sales of $497.5 million for the quarter, an 8.97% decrease from third-quarter 2011, and gross losses of $12.9 million, compared with gross profits of $34.8 million in the same period last year.
• The Plant Services segment reported sales of $292.4 million for the quarter, a 2.24% increase from third-quarter 2011, and gross profits of $22.5 million, a 27.84% increase.
• The Environmental & Infrastructure segment reported sales of $482.5 million for the quarter, a 4.6% increase from third-quarter 2011, and gross profits of $48.8 million, a 4.72% increase from the same period last year.
• The Energy & Chemicals segment reported sales of $158.2 million, a 68.66% increase from third-quarter 2011, and gross losses of $23.3 million, compared with gross losses of $104 million in the same period last year.
• The Fabrication & Manufacturing segment reported sales of $130.2 million for the quarter, a 27.15% increase from third-quarter 2011, and gross profits of $20.8 million, a 48.57% increase from the same period last year.

For the full fiscal-year 2012, Shaw executives continue to predict revenue of between $5.5 billion and $6 billion, but now believe the total backlog will be about $18 billion, slightly down from past predictions. This decline is due largely to the dropping of a single project: Progress Energy Incorporated's (NYSE:PGN) (Raleigh, North Carolina) multi-billion nuclear project in Florida, which has been delayed for more than five years.

"We continue to do very well in plant service," said J.M. Bernhard Jr., the chairman, president and chief executive officer of Shaw, in the conference call. "We now have 45 of the 104 [nuclear] plants [in the U.S.]. If you take the operating nuclear plants in this country where outage work is not done by the clients themselves, our plant totals now exceed all combined competitors."

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

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