Babcock & Wilcox Co Earnings Call Insights: Bids Outstanding, Power Side Margins

On Thursday, Babcock & Wilcox Co (NYSE:BWC) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Bids Outstanding

Joe Ritchie – Goldman Sachs: So, I’ve got one comment and then two questions. Jim, I know it’s early, so we definitely appreciate your thoughts on what you’ve seen so far in B&W (NYSE:BWC) and the potential initial levers that you can pull to help unlock shareholder value. We’re looking forward to hearing a lot more about that in future discussions. But moving on to my question, the first question is on the bids outstanding, you got $4 billion in bids outstanding today, that seems like a material uplift based on where you guys have been over the last three to six months. If you could maybe provide some color on how that has trended over the last six months, and then in particular on the emissions award, if you can comment on the pace of emissions awards because they seem to be surprising to the upside at least from our perspective would love to hear a little bit about that?

Mary Pat Salomone – SVP and COO: This is Mary Pat. In response to that, Joe I think that our bids outstanding in the first quarter have definitely uplifted from where they had been, but that’s really a positive. What’s driving that is, there is definitely regulations, we talk a lot about CSAPR, we talk a lot about MACT, but there are other regulations driving utilities to install environmental equipment in addition to that. So, we do have a portfolio there of technologies that provides the customers a range of choices to deal with their particular challenges. So we are finding those choices to be very beneficial in this whole environmental surge here. It is difficult to predict bookings quarter-by-quarter, and so I think overall we expect the 2012 environmental bookings to be higher than the 2011 environmental bookings. We really referencing that this represents significant opportunity.

Joe Ritchie – Goldman Sachs: You’re well on your way to surpassing 2011, I guess, really on the pace it was interesting from recent discussions that we’ve had it seems like the second half of the year with — the awards are going to be back-end weighted for the emission cycle for 2012 and yet you started off the year with $250 million, and so is that still your expectation that the awards for – on the emission side are going to be greater in the second half than they are in the first?

Mary Pat Salomone – SVP and COO: We continue to see continued buildup there, and continued driving that – I think, we had anticipated that there might be a slowdown in the first half of the year due to what was going on with CSAPR, and the utilities reevaluating. Again, as I said, there’s a lot of things driving the environmental work beyond just CSAPR and so we continue to see that move forward.

Joe Ritchie – Goldman Sachs: Okay. Then I guess just one follow-up question on the margins, particularly on the government op segment, really strong this quarter, well above call it normalized levels. Was there anything one-time that benefitted the quarter, and how should we be thinking about the trajectory of those margins going forward? Thank you, I’ll get back in queue.

Mary Pat Salomone – SVP and COO: There was nothing specific that drove the first quarter in the Nuclear Operations group. I think, with regard to our entire government portfolio, we believe that – we expect, as we’ve told you before, a relatively constant earnings as compared to the 2011 record level earnings that we achieved.

Power Side Margins

Tahira Afzal – KeyBanc Capital Markets: Good morning, and congratulations on a good quarter. My first question is really in regards to the margins on the Power side, you’ve seen strong bookings. It seems incrementally the momentum then generally is better than you thought. So, qualitatively can you just talk a bit about how we should be thinking about the power margin trajectory going forward, and then I have just one more follow-up?

E. James Ferland – President and CEO: Mary Pat is going to take the margin question.

Mary Pat Salomone – SVP and COO: Quarter one is seasonally a lower margin quarter than other quarters typically are. Last year we also had some three favorable project close-outs in the first quarter as well. Again as we have said before we expect pretty flat margins as compared to 2011 over the year, but clearly if the revenue is up so the contribution is going to be up, so that drives the numbers higher. Our target margin going forward is still in that 7% to 10% range that we have told you before. So, I think that that’s our expectation then.

Tahira Afzal – KeyBanc Capital Markets: Actually I lied, I have two follow-ups. Jim, first of all, you have had a lot of experience with very established firm on the nuclear side as you look at mPower and I know Westinghouse has recently jumped into the fair on the small modular reactor side as well. Can you talk about as you’ve come into BWC and you’ve examined mPower what do you think that really key advantages there are in terms of technology to the extent you can that really put it ahead of some of its peers perhaps. And then if you can talk about some of the opportunities there in the marketplace in the U.S. and internationally and we’ve been hearing a little more about Europe and (indiscernible) retirements there and the potential market for SMRs would love to get your thoughts there?

E. James Ferland – President and CEO: I’m going to be a little bit careful on the technology question just as you said given my background. I will say about mPower, B&W (NYSE:BWC) is clearly committed to that and we have some very talented resources that are working both on the commercial business side and on the technology side of mPower, and I’m impressed with the Company’s efforts on that front but I’m probably going to leave it at that as far as direct comparisons. Market opportunities, in my view, are many for mPower. Obviously, we tend to think first in the U.S. where I do think are some market opportunities in the next few years. I think the concept of SMRs plays well though all around the world and I see significant opportunities to some extent in Europe, and more so and primarily, in the developing countries in Asia. I think there’s an awful lot of upside opportunities for SMRs certainly in China and to some extent in India, and you’ll see over the next couple of years, our focus intensify in those parts of the world as we look to develop those opportunities.

Tahira Afzal – KeyBanc Capital Markets: A quick last question really on the Virginia Class submarines, the scope increased, to the extent you can comment on what that was driven by? Then, the original (indiscernible) plan that came out earlier talked about potentially increasing the scope of Virginia-class submarines to accommodate more missiles. Would that potentially mean larger scope if that proposal goes through?

Mary Pat Salomone – SVP and COO: With regard to the – I think, Tahira, what you’re referencing is the contract that we just announced. That’s really new technology in some components for Virginia-class submarines. So, that’s what’s that’s related to, exciting opportunity for us there. With regard to the other changes in the missile compartments for Virginia-class, that doesn’t really affect the base reactor compartment as all, and so therefore there is no real change to the submarines and to our scope of work that is out.

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