FOOL CONFERENCE CALL SYNOPSIS*
By Greg Markus (MF Boring)

The Shaw Group Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:SGR)") else Response.Write("(NYSE:SGR)") end if %>
11100 Mead Road, Second Floor
Baton Rouge, LA 70816
504/296-1140

ANN ARBOR, Mi., Jan. 9, 1997/FOOLWIRE/ --- The Shaw Group is a leading supplier of industrial piping systems, serving primarily the electric power, chemical, and refining sectors worldwide. The company today reported sales and earnings for the first quarter of its 1997 fiscal year.

SALES AND EARNINGS

For the quarter ending Nov. 30, 1996, sales increased 74% to $67.6 million from $38.8 million in the first quarter of fiscal 1996. Net income increased to $3.0 million, compared to $1.7 million a year ago. Earnings per share increased 55% to $0.31, as compared to $0.20.

Sales were positively influenced by an increase in international sales (specifically, in the electric power sector), an increase in projects in the domestic chemical and refining sectors, and sales from the manufacture of specialty pipe fittings, a capability acquired by Shaw in April 1996. Total sales for the quarter were classified as follows: 42% power projects, 17% refinery, 33% chemical, paper 2%, and other 5%. The foreign/domestic breakdown was: 49% foreign, 51% domestic.

The company's reported gross margin was 20.6% for the first quarter of fiscal 1997, compared to 18.5% in the corresponding quarter last year. Shaw Group attributed the expansion in gross margin to an increase in international electric power projects and robust domestic chemical and refining market conditions. Operating margin was 8.7% versus 7.4% a year ago.

PROJECT BACKLOG

Shaw Group reported backlog of approximately $161 million as of Nov. 30, a 49% increase over the comparable figure a year earlier. That primarily reflects an increase in overseas power project bookings, which make up over 48% of the company's backlog. The balance of the backlog is: 12% refinery, 40% chemical. Geographically, the backlog is 57% foreign projects and 43% domestic ones.

J.M. Bernhard, Jr., Shaw's president and CEO commented, "Project flow from the domestic chemical and refinery sectors continues at healthy levels, reflecting an increase in demand for ethylene and other petrochemical products. Based on the level and quality of the projects we are currently bidding, we expect sales to these sectors to remain strong for the balance of fiscal 1997."

BALANCE SHEET ITEMS

In the conference call, it was reported that as of Nov. 30, 1996 working capital stood at $47 million. Short-term debt was $65 million; long-term debt, $33 million. Shareholders' equity was $76 million. The total debt-to-capitalization ratio was 55%, with the number of shares outstanding equaling 9.9 million. The increase in the number of shares versus a year ago (8.6 million) is primarily attributable to the acquisition of Word Industries in Jan. 1996, for 385,000 shares, and Alloy Piping Products in April 1996, for 540,000 shares.

Shaw Group executed a secondary offering of 2 million shares in late December. The company was not able to complete its acquisition of NAPTech Inc. prior to the secondary offering. Shaw reported that the deal is progressing well and they are completing the final documents. The earliest date that the transaction can be completed is Jan. 23.

Proceeds from the secondary offering will be used to pay down debt, which will reduce Shaw's debt to capitalization ratio.

PROSPECTS FOR 1997

In the follow-up conference call, a company spokesman said that fiscal 1997 is off to a strong start and growth prospects look promising, with healthy backlog and project inquiries. He noted that Shaw continues to benefit from the vertical integration of its business. More specifically, the company's ability to offer total turnkey packages, including engineering and design of complex piping systems, has enhanced its ability to secure international power plant work. Also, Shaw's broader in-house capabilities have enhanced the company's raw material purchasing power and decreased the Company's dependence on outside vendors.

ANALYSTS' QUESTIONS ABOUT BACKLOG AND PROFIT MARGINS

In response to analysts' inquiries about an apparent decline in the volume of backlog in power plant work, which carries higher profit margins, the company replied that they do not regard this as a trend but rather as quarter-to-quarter "lumpiness." The company expects that power plant work will be a greater percentage of sales in the current (i.e., second) quarter, as well as in the third quarter. "The backlog we're working on now was awarded in the second quarter of last year," said the company spokesman. Overall, he continued, prospects continue to be very robust, and they see no downturn whatsoever, especially in the chemical business.

Pressed further on whether Shaw Group expects to sustain current profit margins if the higher-margin power work is becoming a smaller percentage of the total mix, the company replied that their goal is to achieve sustained operating profit in the double-digit range, "So I guess the answer is yes."

The company spokesman noted that although the profit margin on domestic chemical projects is lower than that for power plant work, the margin on international chemical projects equals that of the power business; and, in general, work outside the U.S. has a greater profit than domestic work. "The key is that our international projects make up 57% of our total backlog, which is an increase. So we do think the gross margin can be sustained."

There is an overseas component in the current backlog of chemical work, and it is becoming a more significant amount. Some of that work being done in the U.S. and some in Venezuela, as well as a significant part beginning to be done in Bahrain. Shaw tries to do the work outside the U.S. whenever possible, because of the associated higher profit levels. The company is increasingly successful in that effort as the product turned out at its overseas facilities becomes more and more acceptable to the company's customer base.

An analyst noted that while Shaw's backlog has jumped significantly on the chemical side, there's a prevailing fear -- perhaps unjustified -- that the chemical industry is "peaking out." Shaw's spokesman replied that it may be peaking for engineering of such projects, but the bulk of the work Shaw does on such projects lags 10-15 months behind the engineering phase. Shaw is still bidding on new ethylene plants in $10-$12 million class, for example. Also Shaw operates on a worldwide basis, not just in the U.S. Another factor to consider is that whether one classifies a new project as "power" or "chemical" is a matter of judgment to a degree: "For example, how do you classify an LNG [liquid natural gas] plant?"

OTHER QUESTIONS FROM ANALYSTS

In response to a question, the company pointed out that its tax rate fluctuates somewhat as international sales ramp up and the product mix changes. The estimate the company uses is 34.5% for the current fiscal year.

A participant in the conference call observed that only one analyst from a major Wall Street firm presently covers the company. The Shaw Group spokesman replied that they continue to seek additional institutional coverage and believe that their in-house capability in that regard has done well this year and will continue to do so in the current year.

Finally, when asked about any updates regarding new business alliances or clients, the company said they were very close on two or three alliance agreements and would announce them when it was appropriate to do so.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.