B&W Announces Restructuring of Traditional Power Business and Updates Guidance for 2016
28 June 2016 - 10:30PM
Business Wire
Babcock & Wilcox Enterprises, Inc. (B&W) (NYSE:BW) today
announced actions to proactively restructure its traditional power
business in advance of a lower projection for U.S. coal generation
and has updated guidance for 2016 to reflect:
- The net impact of the restructuring and
decreased coal-related revenue in the second half of 2016.
- A charge to correct an engineering
design error on a new build renewable energy plant in Europe. The
resulting re-engineering, on-site rework and delivery delay will
result in a $32 million pretax charge in the quarter and a
full-year ($0.51) EPS impact.
- The shift of $38 million in 2016
expected revenue from a Canadian oil sands project that was delayed
due to the impact of the Fort McMurray fires.
Revised earnings guidance for adjusted EPS is now $0.63 to
$0.83, primarily due to the effects of the renewable energy project
and the timing shift of the Canadian oil sands project. The
restructuring savings largely offset the impact of expected lower
coal-related revenue. Revenue guidance remains unchanged at $1.8
billion as the incremental revenue from the SPIG acquisition, which
is anticipated to close early in Q3, is expected to approximately
offset the other revenue impacts. B&W will webcast a discussion
of this announcement on Tuesday, June 28, 2016 at 9:00 a.m. ET.
Traditional Power Business Restructuring
B&W is restructuring its traditional power business that
serves coal-fired power generation to reduce overhead and improve
efficiency in response to projections that coal utilization,
particularly in the U.S., will decline faster than previously
forecast. The new organizational structure includes a redesign of
workflow for its North American-based coal power generation
resources to provide an effective, flexible organization that can
adapt to the changing market conditions.
As part of these changes, B&W will eliminate over 200
positions in North America immediately and undertake other
cost-savings measures across the enterprise. The company also
expects additional facility consolidations in the coming year.
Severance expenses and other costs over the next 12 months will be
approximately $55 to $60 million, of which approximately $30
million are non-cash and include the write-down of B&W’s one
coal power plant and deferred tax assets related to the India
manufacturing joint venture and various state net operating loss
carryforwards. These savings are expected to allow the coal
business to hold gross margins constant in the coming years despite
the expected decline in volume.
B&W is consolidating aftermarket and global new build
activities for coal-fired generation into one segment that will be
led by Mark Low, Senior Vice President of the new Power segment.
All renewable energy projects, including the B&W Vølund
subsidiary, will be consolidated into another segment, led by Paul
Scavuzzo, Senior Vice President of the new Renewable segment. This
new structure will allow for a Power segment focus on efficiency
and support for our traditional customer base while the Renewable
segment focuses solely on renewable project execution and worldwide
growth.
“We have reduced the size of our organization that supports the
coal market by roughly 20% and restructured how we support this
market,” said E. James Ferland, Chairman and Chief Executive
Officer. “These changes will allow us to continue to provide
outstanding service to our customers and maintain solid profit
margins in our power business despite an expected 15-20% reduction
in U.S. coal customers’ demand for our parts and services by 2017
or 2018.”
European Renewable Energy Project
During construction, B&W self-discovered a deficiency in the
piping design of one of our renewable waste to energy projects. The
correction requires engineering and then physical rework. B&W
is working closely with our customer to minimize any delays and
ensure the delivery of a high-quality facility that meets or
exceeds all performance guarantees. “Our B&W Vølund subsidiary
has completed 25 projects in the last ten years,” said Ferland. “Of
those projects, 23 out of 25 were profitable, and significant
project improvements were achieved due to good execution. We
believe this is an isolated issue and have performed reviews to
ensure this piping design issue is not present in the other
projects.”
Overall Strategy
“B&W remains focused on executing our strategy,” continued
Ferland. “We are taking early action to ensure the coal-related
business remains profitable in a challenging market while we grow
our renewable energy business and diversify our portfolio through
acquisition. We expect to close the SPIG acquisition early in the
third quarter and continue to believe the revenue synergies for our
combined businesses will provide significant upside. In addition,
we plan to leverage our strong balance sheet and focus on
diversification which we believe will provide increased value for
our investors.”
The listen-only audio of the conference call will be broadcast
live at www.babcock.com. The dial-in number for participants in the
U.S. is (877) 201-0168; the dial-in number for participants outside
the U.S. is (647) 788-4901. The conference ID for all participants
is 40731262. A replay of this conference call will remain
accessible in the investor relations section of the Company's
website for a limited time.
Forward-Looking Statements
B&W cautions that this release contains forward-looking
statements, including, without limitation, management’s
expectations regarding the industries in which we operate; our
guidance and forecasts for 2016; and our projected operating margin
improvements, savings and restructuring costs. These
forward-looking statements are based on management’s current
expectations and involve a number of risks and uncertainties,
including, among other things, disruptions experienced with
customers and suppliers; our ability to correct project engineering
design errors within our expectations; our ability to realize the
anticipated savings and operational benefits from the restructuring
plan; the inability to retain key personnel; adverse changes in the
industries in which we operate and delays, changes or termination
of contracts in backlog; the timing and amount of repurchases of
our common stock, if any; and the inability to grow and diversify
through acquisitions. If one or more of these risks or other risks
materialize, actual results may vary materially from those
expressed. For a more complete discussion of these and other risk
factors, see B&W’s filings with the Securities and Exchange
Commission, including the our annual report on Form 10-K and
subsequent quarterly reports on Form 10-Q. B&W cautions not to
place undue reliance on these forward-looking statements, which
speak only as of the date of this release, and undertakes no
obligation to update or revise any forward-looking statement,
except to the extent required by applicable law.
About B&W
Headquartered in Charlotte, N.C., Babcock & Wilcox is a
global leader in energy and environmental technologies and services
for the power and industrial markets. B&W companies employ
approximately 5,700 people around the world. Follow us on Twitter
@BabcockWilcox and learn more at www.babcock.com.
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version on businesswire.com: http://www.businesswire.com/news/home/20160628005388/en/
Babcock & WilcoxInvestors:Leslie KassVice President,
Investor Relations and
Communications704-625-4944investors@babcock.comorMedia:Ryan
CornellPublic Relations330-860-1345rscornell@babcock.com
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