COVID-19 took a big bite out of BWX Technologies’ commercial segment in the second quarter of 2020, but that was more than offset by strength in the company’s bread-and-butter nuclear Navy business, the Lynchburg, Va.-based nuclear operator and manufacturer said this week.
Part of the drag for the Nuclear Power Group, where profit nearly vanished and revenue tumbled in the quarter just ended, was lower sales of medical isotopes. Hospitals are prioritizing patients sick with the respiratory illness caused by the novel coronavirus 2019, BWXT President and CEO Rex Geveden said on a Tuesday call with investors.
“We witnessed weaker demand for products in the second quarter as hospitals prioritized resources for COVID-19 and doctors continue to limit patient exposure,” Geveden said. When things might improve “is more difficult to predict as we move into the second half of the year … as COVID-19 cases are on the rise for a second time in certain geographies.”
Operating income in the Nuclear Power Group, which includes the company’s commercial nuclear-power and medical-isotope businesses, plummeted in the second quarter almost $14 million to about $1 million. Segment revenue dropped about $20 million to some $68 million. Backlog increased to more than $770 million from $730 million in the first half.
In a press release this week, Geveden said the company’s only commercial segment “is well positioned for recovery through the remainder of the year.”
Company-wide, BWXT’s quarterly net income rose $5 million to about $64 million, or $0.67 per share, from about $59 million, or $0.62 per share, a year ago. The core naval reactors business carried the load, as it did last quarter.
In 2018, BWXT completed its acquisition of the Nordion isotope business from Sotera Health. The company currently sells products including indium-111 for medical diagnostics, iodine-123 for research, and palladium-103 for early stage prostate cancer treatment. It also is moving into the market for molybdenum-99, with an initial product offering still on the slate for “mid-2022,” Geveden said.
“[W]e are progressing as planned on the Moly-99 product line,” Geveden said on the call. “The radiochemical and radiopharmacy designs are complete and facility modifications and construction are well underway.”
Geveden and other BWXT representatives have acknowledged challenges that have slowed the scheduled production of mo-99, an isotope that decays into technetium-99m, which is used widely in medical imaging. Two years ago, the company projected production would begin before the end of 2019, while last year it forecast initial sales by the first quarter of 2021.
Geveden said that improving exchange rates for Candian dollars — the company has substantially exited the U.S. nuclear power market but remains involved with Canadian nuclear power — should help improve Nuclear Power’s performance in the second half. A return to form for medical isotopes would not hurt either, Geveden said.
Medical isotopes are “a high-gross-margin business,” Geveden said on the call. “With a little bit of lift, that’ll improve margins substantially.”
But with the commercial segment on the slide, “I have also tasked the business to look for incremental opportunities, and to evaluate all possible cost actions at our disposal during this extended disruption,” Geveden said. “We will also consider any potential government reimbursement programs that could offset negative financial pressure from carrying a fuller set of resources as we maintain a posture that is aligned with a return to more normal future conditions.”
The financial winds were balmier in the government segment during the quarter, though Geveden cautioned against a quick resolution to issues over DOE’s award of the $13-billion Hanford Tank Closure Contract to the BWXT-led Hanford Works Restoration group.
“I don’t expect we’ll get much, if anything, out of that in 2020, at this point though,” Geveden said.
The Energy Department in May said it had selected the team of BWXT, Fluor, Intera, and DBD for the decade-long contract, which within days drew protests from two other bidding teams: one comprised of Atkins, Amentum, and Westinghouse, and the other reportedly of Jacobs, Honeywell, and Perma-Fix Environmental Services. The Government Accountability Office as of last week had dismissed the protests at the request of DOE, which is reconsdering the award.
Quarterly operating income in the Nuclear Services Group, which includes operations at DOE defense-nuclear sites, more than doubled to just over $4 million, as revenue ticked up more than $3 million to around $33 million. Backlog remained at $43 million, but the figure does not include BWXT’s share of the joint venture companies that run DOE defense-nuclear sites under federal contracts.
The real tide floating all BWXT’s boat’s this quarter was, as usual, the Nuclear Operations Group.
Quarterly operating incoming in the Nuclear Operations Group, the flagship unit that includes the Navy business, rose around $10 million year over year to more than $85 million. Segment revenue rose more than $50 million to about $410 million. The segment cleared some $1.5 billion in backlog in the first six months of 2020, leaving it with just under $4 billion still in the pipeline. That does not include roughly $1 billion worth of unexercised options on an unspecified federal contract. BWXT expects the government to pick up the options.
