Two Nuclear Projects Help Build Record Backlog for Shaw Group in 2Q09

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading engineering, procurement, construction and maintenance contractor Shaw Group (NYSE:SGR) (Baton Rouge, Louisiana) reported mixed earnings results for the company's second fiscal quarter of 2009, which ended February 28. Excluding the company's investment in Westinghouse, which benefitted from a pre-tax foreign exchange translation of $30.9 million, the company's net income fell more than 41% from 2Q08, moving from $32.3 million in 2008 to $18.9 million this year.

As in the previous quarter, Shaw's Energy & Chemicals segment, although not bringing in the largest amount of revenue, brought in the largest gross profit of the company's five business segments, which performed as follows:

• Fossil & Nuclear - gross loss of $31.1 million, down $65.4 million from last year
• Energy & Chemicals - gross profit of $60.6 million, up $45 million from last year
• Maintenance - gross loss of $1.5 million, down $13.3 million from last year
• Environmental & Infrastructure - gross profit of $40.3 million, up $16.8 million from last year
• Fabrication & Manufacturing - gross profit of $33.7 million, down $4 million from 2Q08

Without going into specific details, Shaw pointed out that the large reduction in profit in the Fossil & Nuclear segment was caused by the increased construction costs of a specific fossil project, which resulted in a pre-tax charge of $79.3 million. In a conference call regarding the earnings, President and CEO Jim Bernhard said that major productivity problems had plagued the project and that quality issues and late delivery from vendors, for which Shaw is seeking remuneration, had been a problem.

On a more positive note, Shaw's backlog remains strong. In fact, at $19.0 billion, the current quarterly backlog is a record for the company. This comes in spite of the fact that Shaw has removed Entergy Corporation's (NYSE:ETR) (New Orleans, Louisiana) Little Gypsy repowering project in La Place, Louisiana, from the backlog list. "It has been widely reported here in the Louisiana press that the client, Entergy, has requested a minimum three-year suspension in the project, and accordingly we have removed it from our backlog," said Chief Financial Officer Brian Ferraioli. Industrial Info estimated the total investment value of this project to be $1.5 billion. Even without this project, the backlog in Shaw's Fossil & Nuclear segment is a very respectable $10.3 billion.

Much of the increased backlog is from two nuclear power projects booked by Shaw this quarter, one of which is the largest contract in the history of the company. The larger contract involves the engineering, procurement and construction of a grassroot nuclear power station in Levy County, Florida, for Progress Energy Incorporated (NYSE:PGN) (Raleigh, North Carolina). The plant will use two Westinghouse AP1000 nuclear reactors. The second project involves the addition of two AP1000 reactors to the existing nuclear power plant in Jenkinsville, South Carolina, for SCANA Corporation (NYSE:SCG) (Columbia, South Carolina).

While the leaders of the Shaw Group were obviously unhappy about the problems with the individual fossil project, with projects such as the new nuclear construction rolling in, the future of the company certainly seems solid. Detailed information on these and other projects spanning 12 industrial sectors can be found in Industrial Info's North American Industrial Database.

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Industrial Info Resources (IIR) is a marketing information service specializing in industrial process, energy and financial related markets with products and services ranging from industry news, analytics, forecasting, plant and project databases, as well as multimedia services.