Why McDermott International Stock Is Getting Slammed Today
What happened
Shares of McDermott International (NYSE: MDR) tumbled nearly 25% by 10:30 a.m. EST on Wednesday after the engineering and construction company disclosed that it experienced some cost overruns while constructing the Cameron LNG project in Louisiana.
So what
McDermott and its 50-50 joint venture partner Chiyoda Corporation recently reassessed their progress on the construction of the Cameron LNG project. As a result of that assessment, McDermott said that it expects to report a charge of $168 million during the fourth quarter due to unfavorable labor productivity, increases in subcontracts, and commissioning and construction management costs. The company noted that the charge would negatively impact its fourth-quarter and full-year results for 2018.
The charge isn't the first one by the company, as cost overruns have hampered it in recent years. In the third quarter, for example, the company recorded $744 million in charges after three projects didn't perform as well as expected. While the company noted at its recent investors' day that those projects were outliers and that the rest were progressing as planned, the charge on Cameron LNG suggests otherwise.
Now what
McDermott can't seem to get a handle on what it will cost to build the large-scale energy projects it constructs for customers. Because of that, the company's stock has been under significant pressure in recent months. That volatility will likely continue until the company proves it can complete projects on budget.
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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.