Wednesday, June 5, 2013

Construction Backlogs Drop - Public Firms' Prospects Nosedive

Despite recent upticks in housing starts and new home prices in the U. S., the near term economic outlook for publicly held engineering and construction firms still looks bleak. First quarter backlogs for those businesses dropped 1.5% below the first quarter of 2012, according to financial analysts at Robert W. Baird & Company. Credit Suisse analysts also take note of project execution problems and earnings misses by several public contracting firms. Quarterly net losses of $22 million at Granite Construction, $14.6 million in the oil and gas sector at Willbros Group, and cost overruns on 7 of 11 under construction projects at McDermott International highlight the ongoing economic troubles of the industry.

One bright spot in the cloudy skies of construction industry economics in the first quarter was the investment by Warren Buffet's Berkshire Hathaway of $376 million to purchase 6.5 million shares of Netherlands based Chicago Bridge & Iron. CBI touts itself as the world's "most complete energy focused infrastructure company," and just last February spent about $3.3 billion to acquire Shaw Group, thereby greatly expanding CBI's nuclear power plant construction capabilities.

Lackluster federal and state government construction spending in the foreseeable future, combined with significant risk of private sector project delays and cost overruns, make any quick turnaround of the downward trend unlikely.
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