Markets & Finance

A Fresh Start for Shaw Group?


Shares climbed Thursday after the construction and engineering outfit said it was close to issuing restated financials and named a new CFO

The Shaw Group (SGR) said on July 12 that it was on the verge of catching up on restatements of past financial results and appointed a new chief financial officer. The stock rose 3.4% in NYSE trading July 12 to $51.08.

Standard & Poor's upgraded its rating on the stock to hold from sell, saying it expects Shaw's backlog of orders to grow based on strong demand for power and chemicals construction work It also projected more than 10% growth in revenue for fiscal 2007, wider profit margins and more transparency in future financial reports.

The construction and engineering company said it plans to report restated financial results for the first and second quarters of fiscal 2007 by the end of July and to post its third-quarter results by Aug. 15. The company expects to report a net loss of about $23.8 million after taxes, or 30 cents a share, for the first quarter of fiscal 2007, which ended November 30. That's more than 17% bigger than the previously reported loss of $20.3 million and includes additional after-tax charges of $3.5 million for higher estimated costs of a domestic chemicals project.

Driving a projected loss of $74 million after taxes, or 93 cents a share, for the second quarter, ended February 28, are net charges of roughly $16 million after taxes for Shaw's investment in its Westinghouse business and charges of about $24 million after taxes for its impaired investment in certain military housing privatization projects, partially offset by a $10 million gain for possible additional tax liabilities.

Second-quarter results will also include about $21 million in after-tax charges for the settlement of claims with owners and vendors and final estimates of revenues and costs for two major domestic engineering, procurement and construction projects. That will resolve most of the major outstanding claims against the company as of May 31, 2007. The balance of charges for the quarter relate to multiple increased cost accruals on projects, adjustments to revenue estimates, goodwill impairments, reversal of certain incentive fees, valuations of other assets, and other items.

For the third quarter, Shaw expects to post net income of between 30 and 35 cents a share, including an after-tax loss of roughly $4 million, or five cents a share, for its investment in the Westinghouse segment.

The Baton Rouge (La.)-based company also named Brian K. Ferraioli executive vice president, Finance, effective at the end of July, adding that he will become chief financial officer before the company reports its financial results for the fourth quarter of 2007. In the meantime, Dirk Wild will continue to serve as interim chief financial officer.

When he returns from his medical leave of absence, former CFO Robert L. Belk will assume the role of executive vice president with responsibilities to include executive sponsorship of significant client, investor, banking and governmental relationships, Shaw said.

Since 2002, Ferraioli has been vice president and controller for Foster Wheeler Ltd., where he has been responsible for worldwide financial reporting and internal control functions, and also implemented all of the company's Sarbanes-Oxley policies and procedures.

Shaw's backlog for the quarter ending May 31, 2007 was about $13.3 billion, due to continued strength in the power generation and chemicals markets. Estimated revenues were $1.6 billion for the third quarter and operating cash flow is expected to be around $133 million.

In its upgrade, Standard & Poor's raised its fiscal 2008 earnings estimate by 20 cents to $1.85 a share and boosted its target price to $55 from $35, assuming a forward price-to-earnings multiple of 30, slightly higher than Shaw's peers. (Standard & Poor's, like BusinessWeek, is owned by McGraw-Hill Companies [MHP]).

Bogoslaw is a reporter for BusinessWeek's Investing channel.

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