Shaw earnings down, cash up

• By GARY PERILLOUX
• Advocate business writer
• Published: Oct 30, 2009 - Page: 6B

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The Shaw Group Inc.’s earnings fell 11 percent for its 2009 fiscal year, which ended in August, but the engineering and construction firm posted record sales of $7.3 billion and stockpiled enough cash to arouse acquisition suspicions from analysts Thursday.

Neither Chairman Jim Bernhard nor Chief Financial Officer Brian Ferraioli dropped a hint about merger and acquisition plans for the company’s record $1.5 billion in cash. The company does have a $1 billion bill due by 2013 for its 20 percent ownership in nuclear power partner, Westinghouse Co., but Shaw can choose to sell that stake back to Toshiba Corp., which owns 77 percent of Westinghouse.

Shaw also has a borrowing capacity of $2 billion, in addition to the cash, from a group of lenders.

On the annual earnings, Shaw’s $170 million translated to $2.02 per share, down from comparable figures of $191 million and $2.27 per share for the 2008 fiscal year.

In the fourth quarter, Shaw’s $40.5 million in net income represented a 37 percent drop from the 2008 final quarter. Per share, the company’s fourth-quarter earnings fell from 77 cents in 2008 to 48 cents this year.

For 2010, Shaw forecasts annual earnings closer to the 2008 level, at $2.10 to $2.20 per share on sales of about $7 billion. The company expects to generate an additional $375 million in cash flow in its fiscal 2010 year, a forecast that piqued the curiosity of analysts.

On a conference call Thursday afternoon, Bernhard told Steven Fisher of UBS that Shaw wouldn’t comment on how much cash it would be willing to part with on a business deal or on how much cash the company needed to maintain on its balance sheet.

That total could approach $2 billion by the end of 2010 at the current pace, said Stifel Nicolaus analyst Barry Bannister. By 2012, Shaw could have nearly as much cash, at $23 a share, as the value of its current stock price, he said.

“I don’t mean to push it, Jim,” Bannister said. “But that’s an awful lot of cash. Just what would you rank as prioritized uses of the cash?”

“We’re looking at all of our options, obviously,” Bernhard said. “There’s an opportunity for us, certainly, to increase shareholder value in a major way in almost any option you could look at. … There’s plenty of opportunity to increase earnings (with share buy-backs), etc. And certainly you would expect us to do that in a timely manner, which we are prepared to do.”

A weaker year from the company’s power projects, which included construction cost overruns on a pair of coal plants, dragged revenue in that segment — Shaw’s biggest — down nearly 3 percent from last year to $2.58 billion.

Offsetting that were gains in Baton Rouge-based Shaw’s energy and chemicals unit — up 25 percent to $947 million — and its environmental and infrastructure group of mostly federal projects, where revenue rose 29 percent to $1.84 billion.

The most profitable of Shaw’s five operating segments was its fabrication and maintenance unit, which had a 22 percent gross profit margin on $623 million in business.