The Long Case for Foster Wheeler: 'White Hot a Year Ago, White Hot Today'

Since reporting their quarterly and full 2006 year earnings on February 27th, Foster Wheeler Ltd. (FWLT) has announced six new contract wins. I thought I'd take a moment to list out these contracts and recap some of the highlights from their conference call. After beating their earnings by 17 cents per share and having, what I would consider, an upbeat conference call, the stock has dropped approximately 8.5 percent.

New Contracts

March 13: Delayed Coker Award from Indian Oil Corpoaration - "...provide a license and basic engineering package for a new delayed coker."

March 8: Three Circulating Fluidized-Bed Steam Generators by Hanwha International Corporation - "...design and supply of three circulating fluidized-bed [CFB] steam generators for a chemical facility located in the Yeosu area of Southern Korea." Source: Press Release

March 5: Contract by CEPSA for New Refinery Units in Spain - "...detailed engineering of new crude, vacuum and gas recovery units..."

March 1: Full Release on Longview Power Project - "Design and supply of a supercritical once-through pulverized-coal [PC] steam generator for Longview's coal-fired generating facility..." Value disclosed at approximately $200 million.

Feb 28: Front-End Design for LNG Liquefaction Facilities in Nigeria - This is a Front-End Design contract in a joint venture with Chiyoda Corporation. "The SevenPlus project involves the construction of two new natural gas liquefaction trains, each producing 8.5 million metric tonnes of LNG per annum, at NLNG's Bonny Island LNG complex in Nigeria. On completion, these will be the two largest LNG trains in the world."

Feb 28: Contract for Terrace-Wall [TM] Reformer and Fired Heaters at Bangchak Refinery, Thailand - "...engineering and materials supply contract for a Terrace-Wall [TM] reformer and three fired heaters by CTCI Corporation."

Notes from February 27th Conference Call

196.4 million net income, highest net income ever achieved

3 consecutive record breaking quarters

Full Year 2006 Scope Operating Revenues increased 56 percent to $2.8 billion

Scope Backlog increased 17 percent to $2.5 billion

Cash and Short Term Investments at year end 2006 total $630 million, up 69 percent from 2005

Company is looking to utilize its current cash position to reduce their debt in an effort to improve their credit rating

Company is looking to utilize its current cash position to grow through acquisitions. In specific CEO Raymond Milchovich said they are looking to utilize M&A to grow their Global Engineering and Construction Group. Milchovich specifically stated that they will not acquire a company that they suspect has a risky backlog.

Milchovich referred to the Global Engineering and Construction market as "white hot a year ago and its white hot today".

Milchovich indicated the Global Power Group simply has more demand than they can meet; margins are much improved today than a year ago.

Evaluated a share buy back but has no plan to repurchase shares.

I like the story in Foster Wheeler, as global demand in both segments of their business remains very strong. According to Reuters, competitor Alan Boeckmann from Fluor Corporation (FLR) said "We expect sustained global demand for energy and infrastructure to continue to drive strong new awards for Fluor in 2007". Fluor Corporation is larger and more diversified business, and while I like the Fluor too, I prefer Foster Wheeler due to their more focused business lines.

Disclosure: I sold half my position in FWLT back on February 26th in anticipation of a earnings sell off. At the time of this writing, I remain long term bullish on the rest of my position in Foster Wheeler Ltd.

FWLT 1-yr chart