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

The Shaw Group
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11100 Mead Road
Baton Rouge, LA 70816
(504) 296-1140

ANN ARBOR, Mich., July 16, 1997/FOOLWIRE/ -- THE SHAW GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:SGR)") else Response.Write("(NYSE:SGR)") end if %> is a leading supplier of integrated piping systems and a provider of industrial construction and maintenance services for the electric power and process industries worldwide.

On July 8, Shaw reported financial results for its third fiscal quarter ended May 31. Edward Pagano, who recently joined Shaw as the company's new Chief Financial Officer, was introduced in the follow-up conference call. Pagano came from Kvaerner John Brown, the third largest engineering and construction company in the world.

SALES. Sales of $88.9 million represented an increase of 21% from the $73.5 million reported for the third quarter of fiscal 1996. Sales increased 4% sequentially. Through nine months of FY97, revenues were $250.1 million compared to $173.2 million in the first nine months of FY96, an increase of 44%. International sales increased 30% to $28 million for the quarter. Through nine months, international sales increased 56% to $75.5 million.

INCOME. Net income increased 89% to $3.55 million for the quarter (from $1.88 million a year ago), and earnings per share increased 53% to $0.29, versus $0.19 a year ago. Through nine months of FY97, income more than doubled to $10.3 million (versus $4.70 million). EPS increased 82% to $0.91 versus $0.50 per share.

GROSS MARGIN. Gross profit margin for the third fiscal quarter was 19.5% compared to 17.7% for Q2 and 17.1% for Q3 of FY96. The improvement primarily reflects improved profitability on domestic process work, as well as an increase in sales for value-added products and services, such as engineering and design, specifically for power projects. Gross margin for the first nine months of FY97 was 18.8% compared to 16.4% for the first nine months of FY96. The company believes that a 19% gross margin is sustainable for Q4.

EXPENSES. General and administrative expenses for the quarter were 11.3% of sales as compared with 11.4% of sales in Q3 of FY96. Interest expense remained unchanged from Q2. Inventories declined from $76 million in Q2 to $71 million in Q3. As part of the company's ongoing efforts to improve overall profitability, it is taking "aggressive steps" to reduce inventory levels. That involves expanding the distribution outlet in Houston of Shaw's Alloy Piping Products subsidiary, which will serve as a central warehouse for the distribution of pipe and pipe fittings to all Shaw facilities.

OTHER FINANCIAL DETAILS. Accounts receivable increased 2% sequentially, as compared with a 4% increase in sales. Shaw has implemented firm steps to improve the pace and expects to see continued improvements. Cash increased from $4.6 million to $10.7 million due to a British pound buy-forward agreement implemented on June 2; the gain therefore involves a timing issue over the quarter. The effective tax rate remains unchanged at 31.5%.

Q3 IMPROVED OVER Q2. Shaw experienced a labor strike in the second quarter, and bookings of new business were down. Shaw has overcome those issues during the third quarter: the company achieved record bookings of $117 million, a firming up of its previously announced price increase, a pick-up in domestic process awards, and increased power bookings.

ORDER BACKLOG. Backlog was approximately $197 million at the end of Q3. This compares to $169 million at the end of Q2. The growth in backlog reflects an increase in international and domestic process awards, as well as stronger international power project bookings. Shaw also booked a high-profile Reliance project, which enables the company to enter the fuel fabrication market -- a market that was previously untapped by Shaw. The company expects to bid similar jobs in the future. Shaw's Venezuela operations achieved substantial awards during the quarter, also, and is booked to near-capacity for the remainder of the calendar year. The Venezuela market is probably Shaw's biggest growth market in terms of process business and should be a strong market for some time to come. The process market has experienced a turnaround, and demand is high for the kinds of products and services Shaw provides. The backlog breakdown by segment is as follows: power 38%; chemical 33%, refinery 23%, and "other" 6%.

BAHRAIN. Shaw's joint-venture in Bahrain posted a small loss for the quarter, and similar results are expected for Q4, with improvement in the new fiscal year beginning in September. Shaw expects Bahrain to be profitable in FY98.

LONG-TERM TEXAS CONTRACT. Shaw secured a long-term services contract with a major North American chemical customer. Under the terms of the agreement, Shaw will build a facility in the Texas to fabricate and bend small bore pipe spools, with a guaranteed minimum of $3 million in annual sales over a five-year period. Shaw believes that sales could be well above that minimum, perhaps totaling $12 million to $15 million over the next 18 months alone. This is a new kind of contract for Shaw in that the chemical customer will be outsourcing to Shaw work that was previously done in-house.

* 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.