The Shaw Group Inc F1Q10 (Qtr End 11/30/09) Earnings Call Transcript

Jan. 6.10 | About: Shaw Group (SHAW)

The Shaw Group Inc. (NYSE:SHAW)

F1Q10 Earnings Call

January 6, 2010 5:00 pm ET

Executives

Jim Bernhard - Chairman of the Board, President & Chief Executive Officer

Brian Ferraioli - Executive Vice President & Chief Financial Officer

Chris Sammons - Vice President, Investor Relations

Analysts

Jamie Cook - Credit Suisse

Steven Fisher - UBS

Barry Bannister - Stifel Nicolaus

Glosho - Barclays Capital

Scott Levine - JP Morgan

Joseph Ritchie - Goldman Sachs

David Yuschak - Madison Williams

Sameer Rathod - Macquarie

Martin Malloy - Johnson Rice

Mark Levin - Davenport & Co.

Operator

Good afternoon ladies and gentlemen and welcome to The Shaw Group Inc. first quarter 2010 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct question-and-answer session. Please note that this conference is being recorded.

I will now turn the call over to Mr. Chris Sammons. Mr. Sammons, you may begin.

Chris Sammons

Good afternoon. Thank you for joining us everyone. As usual we posted a slide presentation to our website and you can access that of our homepage and the Investor Relations page. There’s the presentation you can print that out or follow along with this and we’ll refer to slides by number.

Leading the call today are Jim Bernhard, Chairman of the Board, President and Chief Executive Officer of Shaw; and Brian Ferraioli, Executive Vice President and Chief Financial Officer.

Before we begin our remarks, I’d like to refer everyone to slide two, which discusses the forward-looking statements and Regulation G Reconciliations. Please consider this cautionary information appropriately with respect to today’s presentation. We’ll have a question-and-answer period as usual after our prepared remarks and the operator will give you instructions for that.

Now, I’ll refer you to slide three and turn the call over to Jim Bernhard, our Chairman and CEO.

Jim Bernhard

Thanks Chris. Before I turn over like a few opening remarks. The earnings were certainly driven by solid execution approaching $100 million in EBITDA, 57% of share. We had an adjustment again for the ex-Westinghouse. The charges for Westinghouse are $102 million on a currency exchange translation based on where we are to date that should be eliminating in the second quarter.

Cash flow was excepted in excess of $100 million range of record cash balance of $1.6 billion, looking for slow as expected in power and petrochemical, which should pickup as we progresses. Brian.

Brian Ferraioli

Thank you, Jim. Looking at the financial review and moving on to slide five. New awards for the quarter are $1.2 billion driven by primarily the Environmental & Infrastructure Group, which continues to benefit from increased U.S. Government spending.

Moving over to the backlog, our backlog at the end of our first quarter is a robust $22 billion, you see made up primarily from the Fossil, Renewables & Nuclear components, as well as the Environmental & Infrastructure Group, which owes a record backlog for them, what’s nice is that we have an excess of $1 billion in backlog in all of our operating units. So we’re looking at a quite good backlog as the proceeds throughout fiscal 2010.

Moving onto slide six, we’ll get the financials as Jim mentioned before, we had another large currency loss associated with the yen denominated debt. I’ll talk more about that later. So rather than looking at the As Reported numbers, I prefer to focus on the second column, which excludes the Westinghouse segment is, that’s how we look at our business and we think it’s always best to look at our core operations.

Revenues were $1.8 billion, are down slightly from a year ago, but pretty much as expected. As Jim mentioned very strong execution during the quarter $155 million of gross profit. EBITDA of $96 million in the net income of $49 million and the EPS was $0.57 per share.

Moving onto slide seven, as Jim also mentioned, we continue to generate cash during the quarter and our total cash and short term investments at the end of the quarter was a record $1.6 billion.

Moving onto slide nine, talking a little bit about the segments, first of all, the revenue for the Fossil in Nuclear group was down from a year ago. That’s primarily related to the product mix. We had significant work in the AQCS or scrubber work. Last year, we finished some of that this year, and most recent is $1 billion project for our client at three different sites that was successfully completed.

As many of you know, we have had a very strong record in dealing with scrubber work. As that work has wound down, you see there as a volume of our business has dropped a bit as expected again and this is prior to the nuclear work ramping up, looking at gross profit $33 million for the quarter and a gross profit percentage of 5.7%.

Before Jamie Cook asks me the question, we did not have any significant charges during the quarter. Our problem projects that we’ve talked about in the past are virtually complete and we’ve had no significant change in any of those.

Moving onto E&C, looking at revenues excluding flow through cost. They were actually up from a year ago, $240 million in revenues. They performed extremely well again from the execution perspective, but as we’ve been indicating for a several quarters, there are higher margin contract that let to record results a year ago have round down a bit and therefore they’ve had a drop in the aggregate dollar amount, but they still have very strong margins at 14% and we would anticipate that margin to equal or exceed that throughout the balance of the year.

Moving onto maintenance, maintenance had a very good quarter. Although their volume was down from a year ago, they executed a fewer outages of the nuclear plants than year ago. Their gross profit was up and up rather significantly from a year ago. Again strong execution, as well as improved margins on some of their renewed contracts led them to a very strong quarter. I remind everyone that this business is a bit cyclical their first and third fiscal quarters are their strongest quarters. So there will be some seasonality in their financial results as we move throughout the year.

Moving onto what I consider a real star for the quarter Environmental & Infrastructure grew $528 million of revenues up significantly from a year, but also the gross profit is up as our margin. These guys are performing extremely well that two large projects for them of the Inner Harbor projects in New Orleans for the Army Corps of Engineer and the MOX project in South Carolina for the Department of Energy continued to be the larger projects for them and they continued to dwell extremely well.

Moving onto the Fabrication & Manufacturing Group, their volume of business again as expected has been down from record from a year ago and their earnings are down in the aggregate, but still quite healthy margin and their performance again was very strong throughout the quarter. So in summary, a good execution quarter, and pretty much as expected from what we have indicated in the prior quarter.

Moving onto slide 10, again the yen strength against the dollar led to a translation loss in our Westinghouse segment, when we close the quarter at the end of November, the yen was 86 yens of the dollar and resulted in $102 million pretax non-cash non-operating charge, which obviously distorts much of the P&L. I remind you that we have a Put Option to sell our shares back to Toshiba’s should be so choose is denominated also in yen at the same yen value as the debt is outstanding for U.S. reporting purposes that as not revalued at the end of each quarter as is the debt.

As Jim mentioned before, if we took the exchange rate of the yen/dollar as of today, if that’s the rate in effect that the end of February, when close the second quarter, this $102 million will be virtually reversed. So again it shows the volatility of our book earnings just because of the movements in the dollar/yen exchange rates.

With that, I’ll hand the call back over to Jim, who’ll go through the operational and market discussion.

Jim Bernhard

Thanks, Brian. Turning to page 12, we’re progressing on the nuclear reactors that we have both in the China and the U.S. and certainly we anticipate additional awards this year. Nuclear reactors are the strongest markets than the power group is certainly on new builds and uprates, we’ll talk about that a little bit and AQCS projects as well as new gas, new builds.

The international markets were developing slowly, but we have a lot of promise their especially in nuclear reactors and AQCS work as well as certainly we continue to monitor real clarity and Washington, D.C. for environmental impact on power projects going forward.

Turning attention to page 13, I think it’s important to relay the information on what we here call uprates as well. Nuclear power plant does various activities and expands, and increases the power they able to produce. There’s some 67 uprates they were pursing in the range of $250 million to $500 million each and was interesting note the average work that were doing at the plants currently represents in expect of $10 billion of uprate work that’s current book of propose by the utility. So, that is going to be a robust market for us, for U.S. to come and we expect to have significant awards this year project uprates.

Natural gas, we have three gas plants that we’re currently building. We expect to as gas prices have going down, the opportunities have going up and we see there’s over period of the years. So there’s a few gas plants that will be awarded this year along with three that we’re doing now, so that market will certainly be own that’s attract of all the short term.

Take a look at what we’re doing in China, significant progress as you can see by the pictures on page 15 the containments up above head at the first unit is in place and the first concrete pole for the second unit is also complete. So these projects are well underway and well its commercial operation 2013 and as far as we’ll finish mechanical completion about a year before that. So about 2012, we’ll be substantially complete our fall of operations in 2013 and doing this AP1000 that the work remains ahead of the projects schedule.

The two projects in the south, I will turn to page 16, V.C. Summer, as well as five global projects, local well underway when the exercisable project of 1000 employees dedicated on these two projects on the [Inaudible] when we can start construction. If you don’t have option we got there unless you can look at the picture and over 1,000 of people on these projects construction is well on its way.

Looking at the E&C market, we continue to have solid execution, particularly at technology group as well as major ethylene projects in Asia that will progress at Singapore, as well as what we’re just completing in Saudi Arabia.

So the Group continues to perform admirably and we expect that it appears to us that awards, the estimating will continues to be very, very hard, clients have been reluctant to release projects, but we think that we have some indication that I’ll move forward in a more positive note over the next two to three quarter. So we’re very optimistic that those relies on the projects that had been bit for sometime, we’re progressing 2010.

On the fabrication and manufacturing, a record backlog is due to the beginning of the initial nuclear scope of work at our new facilities. We’ll begin this month producing our modules from our nuclear plant in Lake Charles, beginning our initial operation. The activity there is very strong in the nuclear module in excess of $1 billion for the projects we currently have. So that business will be very, very busy, ramping up over the next 12 to 18 months.

If you look at page 19, in Environmental & Infrastructure business as a record backlog, we look for that backlog to increase substantially over the year. So they’ll continue to do very well to very large project, the mass projects and so that delivering as it $5 billion continues of progress ahead of schedule on under budget as does the project that we’re doing for the core engineered likely work as you look at page 19 on the bottom to left hand corner.

Interesting enough, this is the largest project ever given to a contract that design built up full of engineers. So as quite warring to had it slight as the project as of the engineer being a first of our current project of the year selected by the core engineer. Along with them, approximately $300 million of stimulus work it’s in a backlog, the activities is extremely high and their award level should be very, very active going forward.

Redeployment of cash, we’re looking at a lot of different times I think it prepared from the facilities we’re investing in both international and fabrication facilities. I think we’ll have some announcements in short order on the investments in that on an international market, we’re looking at some mergers and acquisition as well as possibility in stock repurchase, as well as taking advantage some of the accelerated procurement due to the softness of certain supply markets. So we’re looking at, which you would expect a live drive here in the redeployment of cash.

Page 21 in conclusion, a strong quarter certainly with good execution we expect to continue throughout the year. Record cash balance, we expect that to increase with I think kind of close to $400 million and operating cash this year. The nuclear reactors continue to work will take timely manner and I think that we’re going to see the activity increase and all of our business segments which from this quarter which is encouraging.

If you look at page, our last page here, I guess somewhere some outage. I think we’ll open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Jamie Cook - Credit Suisse.

Jamie Cook - Credit Suisse

I’m not going to beat you up about margins in the quarter Brian, but I guess I has to ask about your margin assumptions, I guess your guidance for the rest of the year given you had such a first quarter so; I’ll play the other side this time. Just in particular, how you’re thinking about margins, on E&C and F&M I know they were areas that concerns for you. I guess just to relate to follow-up question within E&C specifically, you sort to mention your slide’s projects going out for I think redid in 2010 when do you see that oil and gas type awards start ramping up again?

Jim Bernhard

If can remember all those questions, regarding the margins, as I think I mentioned for E&C, we would not expect any significant change to the downward side of anything we would expected to be similar are higher as we move throughout the year. Regarding F&M I would say, that similar.

All of these are depended upon product mix particularly in F&M as they can book different jobs to be a higher or lower margin depending upon the individual job, but directionally, we wouldn’t see any significant change if anything that might be opportunity for some upside there. Regarding the market on E&C, I’ll refer to Jim.

Brian Ferraioli

I mean, we have about five times as current estimates and proposals outstanding as move ahead and we’ve take that backlog to start some of the large will start to come over the next nine months. In fact, our backlog as it is today at the end of the first quarter, we certainly expect that backlog by the end of the year to be another record level and excess of our backlog today.

So we’re encouraged by the opportunities we have and feel confidence that the backlog will increase again from this point in time. I think we had a little point of our backlog. So as we’re recurring and that was $22 billion

Jamie Cook - Credit Suisse

I guess just Brian, just back again to sort of the guidance that we’re giving for 2010. I think with revenue at the same in margins if anything getting better. Any reason why we’re not being more constructive on EPS outlook?

Brian Ferraioli

Yes.

Operator

Your next question comes from Steven Fisher - UBS.

Steven Fisher - UBS

One of you can just give us a sense of the timing and maybe level of competition that you might find on these nuclear uprate projects?

Jim Bernhard

Certainly, today we believe they’ve been smaller, but we’ve think we’ve done about half of and the once coming forward they’re very large. We think that we certainly have a huge opportunity to do well in this market in that we’re doing the outage work for the particular about 40% of the nuclear industry today.

This work works hand-in-hand with outage work. So for the most part it makes a lot of sense to have the same contractor contracting both. So, we’re encouraged by this as far as competition, I’m sure who there will be when I’m sure there’s some guys out there into this work, but we are depended.

Steven Fisher - UBS

Then the timing?

Jim Bernhard

The timing will start throughout this year with awards and loss for probably five to seven years on continually work basis.

Steven Fisher - UBS

Just remind us of the, now that you’ve gone started at on some of the fabrication. Can you remind us for the duration of the $1 billion of work, just trying to figure out what the quarterly run rate might be of revenues?

Brian Ferraioli

I think about three or four years.

Jim Bernhard

You have a real mix in there Steve, and you got the traditional pipe in fieldwork, but they also have some longer term work that they’re doing for the E&C. So there’s a real mix in any of the nuclear work that hasn’t really even started yet. So three or four year, I’ve been prepared assessment.

Steven Fisher - UBS

Then could you just give us a sense of your expectations on any U.K. Nuclear awards and what your scope might be?

Brian Ferraioli

Awards in the U.K., we haven’t commented particular projects and I don’t think that we’ll comment at this time.

Operator

Your next question comes from Barry Bannister - Stifel Nicolaus.

Barry Bannister - Stifel Nicolaus

I’m sorry to ask about specific projects, but there’s just a little bit of a dichotomy between your statement that some projects were virtually complete and the lack of new stories in the press that Rodemacher or Comanche Unit 3 are complete and then there’s also a new story or there’s some rumors that Progress Energy at Levy County is pushing that project further to the right.

Again, I need to ask about some specific projects, but could you address the stage of completion or the pushback potential for Progress Levy, Rodemacher and Comanche Unit 3?

Jim Bernhard

I’m not sure if we’ve commented on particular projects before, but one of those particular projects, our scope is not the tar plant, whether it’s starts up or not do not be our full scope if you were, some projects we have less of the scope and we just above some plan. One of our coal plants that we have out there we’re off the site and there’s some warranty work that needs to be done, but looks as far as for part of the particular project were virtually completed from this slightest work.

Although the coal plant that we have start up on, we have at some minor where we have some testing, yet to do some performance thus they do, it’s been safe to the grade likewise it is being set to the grid there, so it’s 99.9% complete, as far as the comments on particular clients and roomers I leave that you to speculate.

Barry Bannister - Stifel Nicolaus

If you would exercise your put to Toshiba, wouldn’t you loose your U.S. nuclear build exclusivity on the AP1000?

Jim Bernhard

In the agreement that as you caveat U.S. exclusivity, I’m not sure that exclusivity any difference in U.S. or any place else and first of all, and second the exclusivity as it’s in agreement as published I guess, that’s not published and I will comment it further on that.

Barry Bannister - Stifel Nicolaus

Then lastly Brian, what was the $0.03 of earnings attributable to the other line that was not disclosed as far as detail?

Brian Ferraioli

Other line, I’m not following you Barry, sorry.

Barry Bannister - Stifel Nicolaus

Right below currency there’s a line called other and it was approximately $0.03 of the earnings surprise. Do you know what that was on the P&L? It’s $5 million?

Brian Ferraioli

Yes that was some sales of investment that we had. It’s in the corporate segment related to an investment fund in the U.K.

Operator

Your next question comes from Glosho - Barclays Capital

Glosho - Barclays Capital

This is actually Glosho in place of Andy. First, in E&I you had a large booking in late 2008, Inner Harbor Navigation Canal project, but we haven’t really seen any big announcements regarding close to restoration work in the New Orleans region in 2009. Have you gotten much stimulus related work elsewhere in calendar ‘09 and how do we think about the size of those awards going forward in 2010?

Brian Ferraioli

I think as Jim mentioned, we had about 300 million in stimulus award in our backlog. They’re not specific to Gulf Coast restoration projects that I can recall. I’m a little perplexed by your question. In terms of the markets as we said repeatedly, we think the opportunity for some significant awards is quite high.

Glosho - Barclays Capital

Nothing to the size of to the Inner Harbor Navigation Canal projects, I’m just like asking about the size of the award that you are...

Jim Bernhard

We excite that you said that.

Brian Ferraioli

We haven’t commented on the size or locations on those projects, and I think it’s pretty mature to do so.

Glosho - Barclays Capital

Do you expect sort of 2010 to pick up in terms of this stimulus awards versus ‘09?

Brian Ferraioli

We expect that E&I that have substantial amount of works for the rest of the year.

Glosho - Barclays Capital

Where do you see the scrubber market going in 2010 versus 2009? Is there any color on opportunities coming out, any catalyst that would accelerate utilities plants for scrubbers?

Jim Bernhard

I think it will be improved though 2009 was kind of a flat year and a lot of things certainly because the progress or lack of progress or whatever they’re going to do most about the clean their act, so just hock beyond that.

Glosho - Barclays Capital

It’s nice to see SG&A coming down from last quarter just 4.1%. Is that a fair run rate going forward in fiscal 2010 or there any unusual items in the quarter?

Brian Ferraioli

There are not any unusual items in the quarter.

Operator

Your next question comes from Scott Levine - JP Morgan.

Scott Levine - JP Morgan

Regarding the pipeline of nuclear operating work, is that op versus the last couple of quarters? What are your expectations in terms of demand trends driving there? What’s really behind the activity there?

Jim Bernhard

The activities says, these uprates are able to produce electricity at a lower than market rate of building in the other type of electricity. So that’s why these expansions are going to be underway at most nuclear plants throughout the country. So its huge opportunity for the leader in the nuclear fields, especially in maintenance and combination with our engineering talents, so there’s a huge opportunity there.

Scott Levine - JP Morgan

You said a bid opportunity that’s out there, the opportunity you said is larger than it was say six months ago, when you expected to larger six months from now?

Brian Ferraioli

I think it’s been coming down to five quite sometime, we’re 60, 70 contracts during $250 million and $500 million facing along those.

Scott Levine - JP Morgan

Taking look at the maintenance segment, the maintenance margin was high during the quarter or your maintenance’s profit was up year-over-year significantly while revenues were down. I know you’ve kind of flag some construction projects margins or a high margin last few quarters. Is there anything driving that or is that a decent margin, I think about going forward?

Brian Ferraioli

I think performance I think our ability to have a lot of our contracts over the period of years. These contracts last two to three, four, five years. We’ve been able to put some incentives and performance of the contract for outage work done in record periods of China. I think that will continue on a contract basis and get more rather than just cost plus with some performance in incentive fees. So, our guys do or our teams do a real good job out there, and I think our clients recognize that.

Scott Levine - JP Morgan

One last and then on uses of cash, you have a number of options list and sounds like you’re thinking about all of them. Would you care to offer up, any ideas in terms of rank ordering as priority or is it too early to start thinking about that, which is more likely or less likely?

Jim Bernhard

We don’t care to offer comment.

Operator

Your next question comes from Joseph Ritchie - Goldman Sachs.

Joseph Ritchie - Goldman Sachs

Just follow-up to Scott’s question on the maintenance side of your business, you mentioned that part of repeated performance fees, can we quantify how much of that was performance fees basically help pretty significant increase in your margin this quarter? Trying to get a sense also, going forward into the next quarter, whether you have some incentive fees coming up on particular projects on the maintenance side?

Jim Bernhard

I think Brian comments on that earlier. It’s a cyclical business on the outage work. Certainly, a great majority income is done in the fall and the spring. So I would caution you that it’s a run rate from quarter-to-quarter.

Joseph Ritchie - Goldman Sachs

In terms of, I guess you sounded pretty constructive on the gas plant built out in U.S. Can you give us a sense for what you’re outlook looks like over the next, I’ll call it year or two and how many potential combined cycle plants will get built?

Brian Ferraioli

I don’t have a number for you, we’ll get a few this year.

Joseph Ritchie - Goldman Sachs

Then I guess lastly on the F&M side of your business, you also mentioned that you were seeing a ramp in bidding activity. Can you describe a little bit in more detail, what specific end markets you’re seeing there?

Brian Ferraioli

I’m not sure, if we said we had a ramp in bidding activity, we did for the E&C group, but that would naturally flow through to the fab business relating to refineries and chemicals business. That’s were those drop off occurred in 2009 and it impact both of those segments. So I think that’s what we’re referring to increase in the bidding activity.

F&M continues to be busy from the support in the power plant side of the business both the coal fired as well as the nuclear work and as I think, I mentioned early of the nuclear work hasn’t really began yet that will pick up in the second half of our fiscal 2010 and really accelerating in 2011.

Operator

Your next question comes from David Yuschak - Madison Williams.

David Yuschak - Madison Williams

As far as the F&M business is concern, could you just give us an update on how well the start up for the Lake Charles facility has gone? Has it meeting are its maybe some exceeding some of your exceptions for the new business coming in and I do think maybe earlier you thought maybe to get some third party business in there to help out to initially to get that ramp going to? Give us an idea about how that’s going in, because that certainly sounds like by the end of the fiscal year here it should be well on actuate to pretty good profit contribution.

Jim Bernhard

It’s meeting all our expectations I mean this is not our first plan to start up. I mean, we start to built in many of fabrication facilities I think that you’ll partial other work I mean the nuclear work is very, very substantial and $1 billion worth of fabrication work in that facility is an enormous amount of work to do and we’re concentrate right now to execute that as the plans that were billing are really place to hybrid lines on those modules being there.

On time, some of those certainly are on the critical path and I think you’ll find us moving forward that we’ll have some opportunities to engage in the fabrication business in the Asian markets as well facilities that our permanent basis proactive way.

David Yuschak - Madison Williams

So, you thought on the F&M right now is initial success you’re seeing here gives you some confidence to one big in the branch at internationally a little more.

Brian Ferraioli

Yes.

David Yuschak - Madison Williams

One other question, as far as resources are concerned where do you think you guys will need to look at resources to strengthening operations E&Is that going to be in the nuclear area here give us some sense that where you may need to talk us little more.

Jim Bernhard

Well I think we’re going to continued on hiring the nuclear feel certainly and certainly in our business hope growing an extraordinary rapid rate as you would expect and I candidly estimate how good environmental infrastructure business is record earnings, record backlogs and we anticipate the backlog increasing over the year. So they really have some good activities not only the stimulus money, but their in business seems to be looking that also and there’s right now.

David Yuschak - Madison Williams

Jim just one of the areas that a lot of potential certain years suggesting that could be sustain for few more years.

Jim Bernhard

Certainly.

Operator

Your next question comes from Sameer Rathod - Macquarie.

Sameer Rathod - Macquarie

I was saying, how long that the project as to be delayed before it would be taken out of backlog?

Brian Ferraioli

There’s not a specific to that Sameer, what we do as we look at as you know book and I think we up that a legally binding commitment and we have to have management assessment of the projects is likely to proceed. Those are the two criteria, so there’s not a specific point in time to answer your question. It’s taking on individual basis it could be, it really as project specific.

Sameer Rathod - Macquarie

My next question is, what are you thoughts on competition in the international nuclear market versus other technology, so even older technologies vis-a-vis, what the UAE nuclear deal?

Jim Bernhard

I think that the AP1000 remains number one technology in the world by far and there’s an opportunities for other technologies based on customer preferences, everyone chooses and I always chooses to buy new cars, sometimes I’d like to use once just as good. I think that for the most part in AP1000 as far superior.

I really believe that once this China work continues to progress in the next 12 to 18 months award completion that the opportunities for AP1000 and continue to become robust. Right now I mean our inquire level is very high and very active and one times projects go in other way and that’s okay too and there’s certainly a huge opportunity in the market for us more than we would every for possible.

Brian Ferraioli

Sameer, the follow-up on your first question, I also want to remind you, you talking about backlog for the V.C. Summer project for SCANA. There’s only a limited component of that in backlog. So your question is, when we add things to backlog, as well another point that’s coming down the road as this project progress.

Sameer Rathod - Macquarie

Just one last question, you spoke about how gas will become an opportunity. Do you think gas will cannibalize the nuclear opportunity here domestically?

Jim Bernhard

Yes.

Sameer Rathod - Macquarie

I asked if you thought gas would cannibalize the nuclear opportunity domestically.

Jim Bernhard

No.

Operator

Your next question comes from Martin Malloy - Johnson Rice.

Martin Malloy - Johnson Rice

Could you give us an update if there’s any new news regarding the field issue with the AP1000?

Jim Bernhard

We’re all see as expected.

Operator

Your final question comes from Mark Levin - Davenport & Co.

Mark Levin - Davenport & Co.

Some of your more economically sensitive business is I guess you alluded to the fact that you think margins just kind of dropped in potentially could see higher margins as the year progresses. Have you seen over the last 90 days really, since you last reported any meaningful shift in customer behavior, any reason to believe that things we hit that inflation point now, where things are really starting to move up into the right?

Then just from capacity perspectives, in those economically sensitive businesses, do you see a lot of excess capacity? Do you see competitive pricing? How would you sort of assess where we are, if you’re looking for boarder look at some of more economically sensitive stuff.

Brian Ferraioli

I guess I’ll try to feel that one. In terms of change in customer behavior, I wouldn’t say that there’s a significant change in customers behavior, the businesses that have been busy, remain busy as Jim mentioned earlier. The one who had slowed in 2009, primarily related to the refinery or chemical businesses remain somewhat slow. You look at the price of oil $82, $83 oil. You have to believe that sooner or later, some of the projects that have been bid and have been on-hold in plant organizations are going to start to be cut loose.

Obviously, where the economy picking up on a global basis and with the price oil where it is, those are key positive drivers for those two industries, the refinery, petrochemical and chemical industries, which will impact both of our E&C group as well as the fabrication business. So I wouldn’t say, we see any significant change, but what change we do see seems to be positive.

Operator

We have no further questions at this time.

Jim Bernhard

Thank you for participating in the conference call and we look forward to continuing the efforts that we’ve had for the first quarter and continuing throughout the year. Thank you very much.

Brian Ferraioli

Thank you, very much everyone.

Operator

Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.

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