Foster Wheeler Wins EPCm Contract From LANXESS of Singapore (FWLT)

Following the successful completion of the front-end engineering design for the new neodymium polybutadiene (Nd-PBR) rubber plant to be built on Jurong Island, Singapore, the subsidiary of engineering and construction company Foster Wheeler (NASDAQ: FWLT) was awarded an engineering, procurement and construction management (EPCm) contract by LANXESS Butyl Pte. Foster Wheeler expects to complete the proposed rubber plant’s EPCm contract in 2014 at an undisclosed value.

The Switzerland-based Foster Wheeler, through its subsidiaries, operates as an engineering and construction contractor and a power generating equipment supplier worldwide. The global engineering and construction division mainly caters to companies operating in the oil, gas, chemical, petrochemical and pharmaceutical domain.

After falling from a peak of $39.48 per share in the month of February, 2011 Foster Wheeler had been moving on a zigzag fashion between $17.00 and $25.00 for the past year. The annual net income of the company had declined by more than 40% from $215.4 million in the fiscal year 2010 to $162.38 million in the year 2011. The company reported an increase in the fiscal 2012 first-quarter net income to $40.6 million compared to $39.2 million and $36.9 million in the previous two sequential quarters. The increase in net income, albeit with a decrease in total revenue, resulted in a rise in the share price from $17.00 in the month of December 2011 to $26.00 in the month of May 2012.

The rise in share price was also supported by a series of positive developments in the month of January 2012, which included a contract from Hyundai, the acquisition of German scrubber company, Graf-Wulff GmbH, and an LNG receiving terminal contract from India.

Good fortunes continued in the month of February with a contract from Mexican company, Discovery Gas Transmission. The contracts and acquisitions, combined with an increase in fiscal 2011 fourth-quarter net income, took the share price to $25.67 in the month of February 2012.

Zacks Investment Research released a report in the last week of February 2012 stating that the company had underperformed its consensus estimate. The share price still managed to resist a steep decline as contracts kept flowing in. On March 15, 2012, the company announced the receipt of another contract from Complejo GNL del Este, a consortium formed by Dominican and Colombian companies. March also saw the company’s rating upgraded to Baa3 by Moody’s and the sealing of a deal with an Indonesian oil company.

An EPCm contract from TOTAL’s refinery in Antwerp, Belgium, followed by the International Headquarters Award from the Singapore Economic Development Board, and finally a project management consultancy contract from Abu Dhabi National Chemicals Company, enabled Foster Wheeler’s share price to hold above $22.00 until the end of April 2012.

On May 17, 2012, TheStreet downgraded the stock from a rating of “buy” to “hold” on the basis of weak operating cash flow and poor profit margins in the first quarter of fiscal 2012. The sell-off that started in the month of May 2012 resulted in the stock price sliding to $15.61 in June 2012.

On June 27, 2012, Zacks reiterated its neutral recommendation for Foster Wheeler. This was followed by an EPCm contract from EPAX Pharma UK Limited and PDVSA Petróleo S.A. in Venezuela. The company also won the Order of Distinction Award for Occupational Health and Safety by the UK’s Royal Society for the Prevention of Accidents (RoSPA). Following the positive events, share price of Foster Wheeler showed a trend reversal in the month of July 2012. The second-quarter results declared on July 31, 2012, were below expectations. However, the share price continued its uptrend on the news of a contract from Thailand.

On August 22, 2012, the company announced its intention to open a new upstream office in the UK. The following day, Foster Wheeler won a Petrobras contract for a world-class gas-to-chemicals complex in Brazil. A few days later, a contract from Samsung was added to the company’s pipeline of projects. Foster Wheeler ended August 2012 at $21.90 per share.

In the month of September 2012, the company received orders from Korea, Qatar, Russia, Netherlands, Venezuela, Canada and Mexico. The continuous flow of contracts took the company’s share price to $24.00 in the month of September.

Foster Wheeler is scheduled to report the third-quarter results on November 9, 2012. The Motley Fool report published today raised concerns about the company’s shrinking revenue. The company’s shares traded in the red in spite of the receipt of a Singapore contract.

Foster Wheeler ended the day at $23.13 per share, down $0.15 or 0.6% on a volume of 596,877 shares.

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Published by Steve Hackney

Steve Hackney is a corporate finance professional with over 14 years of experience in cash management and investing. He earned a Bachelor of Science in Finance from Florida State University and holds a Certified Treasury Professional certification. Steve lives in Orlando, Florida with his family.