Stephen Rosenman

McDermott International vs. Foster Wheeler: All About Margins

Mark, look at the operating margins of MDR and compare them to FWLT, FLR, SGR, JEC. They are quite a bit higher. At the same time, while MDR has a robust backlog of business, its is a smaller percentage of the total market cap of the company compared to the above 4. I'm not saying they are losing business to the other players in a one to one price war. Rather they are accepting business that is more profitable. I suspect the others are taking less profitable jobs and in effect under bidding. The market gets overexcited about large back logs. I get excited when they can turn the jobs they have into big profits. The operating margins are the key. FLR for instance had 4.8% margins this last quarter (rising over their previous rather sad 3%), a $1.35 a share tax benefit, PE 36, not as good as MDR. Take away the 123 million dollar tax benefit and FLR is left with 136 million dollar profit. MDR and FLR have identical market caps. MDR made 186 million. Again better run, better margins.