Blaming "execution issues" in its new oil-and-gas division, URS Corp. on Feb. 13 announced preliminary results for its fourth quarter and for its fiscal year that are worse than expected and said it was lowering its guidance for 2014.
The firm also said that President and Chief Operating Officer William J. "Bill" Lingard had resigned on Feb. 10.
"We are extremely disappointed with the company's fourth-quarter financial performance, which fell significantly short of our expectations," Chairman and CEO Martin Koffel told analysts in a morning conference call.
URS said it expects 2013 revenue to be $11 billion, which analysts said was "at the low end" of previous guidance of between $11 billion and $11.5 billion. The firm's fourth-quarter expected earnings per share of between 13 cents and 23 cents was well below analysts' $1.08-per-share expectation, said Jamie Cook, head sector analyst for Credit Suisse.
The share price tumbled about 14%, to $42.51, on Feb. 13.
The company said on Feb. 14 that it will discuss on March 3 its final fourth-quarter and year-end results.
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| Koffel |
The issues, which he did not detail, eroded project earnings by about $40 million, said Koffel. He also cited project delays, which he attributed to, in part, "the residual effects of lower-than-expected natural-gas prices."
Andrew Wittman, sector analyst for Baird Equity Research, points to "slower-than-anticipated pipeline offtake capacity in Canada [that] continues to delay development in the oil sands."
Lingard, who joined the firm with the Flint purchase, had been Flint's CEO and was widely seen as Koffel's successor.
Koffel did not offer further details on who would fill Lingard's role but said the company's succession planning "is very deep. We have a good bench."
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| Lingard |
Koffel said that Wayne S. Shaw, oil-and-gas division president, now reports to George L. Nash, president of its energy-and-construction division, to link more closely the two divisions' operations.
The change "will focus on standards of work priorities and focus on execution" and allow better oversight, said Koffel. He said he was still optimistic about the firm's oil-and-gas market potential, noting that sector revenue was $2.2 billion in 2013.
Koffel said the problems were "only execution, not a market dynamic."
Koffel said trends in the firm's industrial, infrastructure and power sectors are "positive for 2014" but that URS had planned for growth in the oil-and-gas sector as a balance to expected declines in its federal-sector work.
The firm announced a major layoff in its federal business last fall and says its chemical-weapons demilitarization work, which Koffel terms "highly successful," is winding down, which will cut revenue by $355 million and operating income by $125 million.
Koffel said he is confident of "growth prospects" in the firm's diverse federal business. Baird's Wittman said that, "while declining contribution from this program was expected, the magnitude is significant."
Because of the year-end results, Koffel told analysts that URS would cut incentive compensation.
However, he said the firm would accelerate its stock repurchase plan in 2014, spending about $350 million to buy back 12 million shares.
Analysts remain concerned about leadership continuity at URS, with Lingard widely touted as the successor to Koffel, who was set to retire. Koffel, who is close to 75 years old, has been in the top roles since 1989.
"With no heir apparent identified ... and a longtime CEO, a leadership vacuum exists at a critical juncture when investor sentiment is challenged," said Wittman.
But there was still optimism on Wall Street. "URS is in the penalty box near term, but if [oil and gas] margins can normalize, shares should better reflect cash flow, organic revenue growth potential and repurchase support," said Michael Dudas, E&C-sector analyst for Sterne Agee.
