For struggling global construction firm McDermott International (NYSE: MDR), the path to a turnaround has been spelled out for investors. Now it's time to execute on that plan.
A quick glance at McDermott's business model suggests this company should be flourishing. It has deep expertise in the construction of massive offshore energy platforms. In recent years, major oil companies have waded deep into the Atlantic Ocean as they seek to replace the output of fast-depleting onshore oil fields. For example, the Lula oil field off the coast of Rio de Janerio might hold up to 8 billion barrels of oil and is currently being developed by Brazil's Petrobras (NYSE: PBR).
But McDermott has stumbled badly, thanks to a series of managerial missteps. Most notably, the company has been unable to complete contracts under budget, turning potentially profitable deals into money losers. That was the result of a decision to pursue deepwater projects, straying from its core competency of shallow-water projects.
Though McDermott has been underperforming for quite some time -- missing profit estimates in the final two quarters of 2012 and the first quarter of 2013 -- the recently released second-quarter results were bad enough to send shares down roughly 20% in just one trading session.
That was enough to lead to a shake-up at the company. A raft of senior executives, many of whom had oversight of regional projects in Asia and elsewhere, has been replaced. The company expects to take roughly $50 million in restructuring expenses, which should "mark the peak of near-term charges," according to analysts at UBS.
The company said it intends to revisit its past strengths. Referring to recent quarterly results on the second-quarter conference call, CEO Stephen Johnson said, "We found that our processes and procedures were somewhat inconsistently applied throughout the organization and that management needs to improve adherence to our proven processes and procedures," adding that "more experienced and more skilled personnel are now being recruited, being trained and assigned to projects by our global operations management."
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