COVID-19 and low oil prices led to a 35.4% drop in revenue for this company during the most-recent quarter.
However, oil prices are rebounding and the company is diversifying into a new business area.
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SHAWCOR LTD. (Toronto symbol SCL; www.shawcor.com) makes sealants and coatings that keep oil and gas pipelines from rusting. It also manufactures industrial products such as electrical wire and protective sheaths.
In the three months ended June 30, 2020, ShawCor’s revenue fell 35.4%, to $266.1 million from $411.8 million a year earlier. COVID-19 and lower crude prices prompted many pipeline operators to cut their spending on projects.
Demand for ShawCor’s services are tied to oil prices and the development of new pipelines. As oil prices fell, the stock dropped to $0.64 on March 18, 2020. However, it has since rebounded with oil prices.
The company also benefits from its recent purchase of ZCL Composites. That Edmonton-based firm makes fibreglass-reinforced plastic underground tanks that store fuel and wastewater. Expanding by acquisition adds risk, but ZCL is less exposed to oil prices than the pipeline-coating business. In the latest quarter, it supplied 28% of ShawCor’s total revenue. As well, ZCL’s high order backlog bodes well for investors.
Energy Stocks: Restructuring plan should help the firm turn around
Excluding unusual items—mainly costs related to the company’s plant closures and employee layoffs—the company lost $0.31 a share in the quarter. A year earlier, it earned $0.27 a share.
ShawCor still expects its restructuring plan will cut its annual expenses by $60 million. It also plans to raise $40 million through asset sales.
These actions put the company in a better position to profit when the economy recovers from the current downturn. As well, its order backlog improved to $575 million as of March 31, 2020, from $513 million at the end of 2019. ShawCor has also placed bids on new contracts worth over $798 million.
In the meantime, the company won a contract to insulate and coat a new offshore pipeline that will transport oil from the Payara field near Guyana. ShawCor expects to begin work on the project in the next few weeks but has yet to say when it expects to complete the job.
This deal is worth between $55 million and $65 million. That’s small next to ShawCor’s annual revenue of $1.3 billion. However, contract wins like these enhance the company’s strong reputation.
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