Foster Wheeler Boom Is Over

“The Four-Year Boom Is Over!”

So sayeth the CEO of Foster Wheeler AG (FWLT) in this morning’s Q4-08 conference call. The Company had a reasonably good quarter with respect to revenues and earnings - Q4-08 revenues of $1.639 billion were up 11.9% over Q4-07, net income rose 27.9% to $99.882 million and EPS climbed 38.95% to $0.75 (still a bit shy of our $0.80 estimate).

But the reality of the situation was brought home by the following irrefutable facts: new orders booked in the quarter were down 87.4% to $581.5 million and backlog was off by 41.6% to $5.504 billion. No matter how you cut it, that ain’t good! Further, the results were affected by numerous recurring “non-recurring items.”

To wit, the tax rate in the quarter was 15.6% as compared to 25.7% last year, due to a “year-end net change in tax valuation allowances.” The average number of shares used to calculate diluted EPS was down 8.2% to 133.2 million as FWLT repurchased 18.1 million of its shares during 2008, both of which aided results.

On the other hand, pushing results the other way was a $6.7 million settlement on a legacy power project in Ireland, a $9.0 million restructuring charge by the Company’s Global Power Group, and $27.2 million of “unfavorable currency movement” as well as a $37.3 million asbestos charge, the latter being amongst a series of repetitive charges the Company has been taking ad nauseum over the years.

The short-term tone of the markets in the Company’s view include increased client tendency to release jobs in phases rather than in a lump sum, increased competition, pressure on margins and pricing. The one positive item looking forward is that the number of man-hours for FEED contracts more than doubled, which means that the contracts associated with those man-hours have a much-better chance of being completed than do others in less-advanced stages.

Specific to FWLT’s Global Power Group, are the weakness in the global economy, the political and environmental angst associated with solid-fuel-powered systems in general and FWLT’s boilers in particular the current relative attractiveness of natural gas as a power source and uncertainty of the capital (read: credit) markets.

All right then!  To summarize: FLWT’s 2009 revenues, margins, earnings and bookings will be “not so good!”  Zacks has a Hold on FWLT.

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