Why Chicago Bridge & Iron’s Gross Margins Fell
Cost of revenue
Chicago Bridge & Iron Company’s (CBI) cost of revenue for long-term contracts is comprised of direct contract costs such as materials and labor and indirect costs that are attributable to contract activity.
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CBI’s cost of revenue came in at $9.7 billion, nearly 15.4% less than $11.4 billion in 2015, primarily due to lower revenues.
CBI’s gross profit margins fell to 9.6% in fiscal 2016 compared to 11.7% in fiscal 2015. The fall was due to the net impact of the increase in forecast costs of three US projects and changes in estimated recoveries on certain projects as a result of lower-than-anticipated labor, lower revenue volume for the higher margin Technology operating group, and reduced leverage of operating costs. The decline was partially offset by a higher margin mix. In absolute terms, gross profit came in at $1 billion in fiscal 2016 compared to $1.5 billion in fiscal 2015.
Adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) came in at $780.8 million, and the EBITDA margin was 7.3% in 2016. That result was less than adjusted EBITDA of $1.2 billion and an EBITDA margin of 9.6% in 2015. The gross profit margin contracted.
KBR’s (KBR) adjusted EBITDA margin fell sharply from 6.8% in 2015 to 2% in 2016. Fluor’s (FLR) EBITDA margin also fell significantly, from 6.3% in 2015 to 4.3% in 2016. Jacobs Engineering (JEC) witnessed minimal EBITDA loss, from 6.2% in 2015 to 6% in 2016. It rose to 6.6% in fiscal 2017.