Baker Reports Revenue and EPS Gains for 3Q04

Michael Baker Corporation (Amex: BKR) reported substantial increases in total contract revenues and earnings per share for both the third quarter and first nine months of 2004 compared to the same period in 2003.

For the quarter, the company reported net income of $3.3 million, or $0.38 per diluted share, on total contract revenues of $141 million. This compares with net income of $1.2 million, or $0.14 per diluted share, on total contract revenues of $106 million in the third quarter of 2003. The current quarter benefited from strong revenue and operating performances in both the Engineering and Energy segments, as well as from lower insurance-related and benefit costs. Earnings in the prior year quarter were adversely impacted by the overall mix of project work and a number of administrative and operating- related costs in both segments that were not present in the current period.

Revenues in the Engineering business increased 37 percent from the year- ago quarter, while operating income, before corporate overhead allocations, increased 80 percent over the same period. The major factor in the operating income before corporate overhead improvement was a continuation of the higher labor utilization rates that the Engineering segment has experienced throughout the year to date, the result of the sizeable backlog it had to begin the year and the addition of several Federal government contracts the company has received in 2004, including the Program Management contract with the Federal Emergency Management Agency (FEMA). Operating income before corporate overhead expressed as a percentage of Engineering segment contract revenues was 9.7 percent for third-quarter 2004, compared to 7.3 percent in third-quarter 2003.

Revenues in the Energy business increased 25 percent from the third quarter of 2003, while operating income, before corporate overhead allocations, rose 26 percent over the same period. The improvement in operating income before corporate overhead is attributable primarily to an increase in Managed Services revenues compared to the third quarter of 2003, and higher third-quarter 2004 margins on international projects. During the current period, the Managed Services business accounted for approximately 21 percent of the segment's total contract revenue, and included a performance incentive payment related to its onshore contracts. Operating income before corporate overhead expressed as a percentage of Energy segment contract revenues was 4.4 percent for the current quarter 2004, compared to 4.3 percent in the year-ago period.

For the first nine months of 2004, net income was $10.0 million, or $1.18 per diluted share, on total contract revenues of $396 million, compared to net income of $1.2 million, or $0.14 per diluted share, on total contract revenues of $310 million for the first nine months of 2003. Combined operating income before corporate overhead allocations in the two business segments increased 84 percent on a comparative nine-month basis due to many of the factors listed above, while operating margins, before corporate overhead allocations, were 9.6 percent for Engineering and 4.5 percent for Energy.

At September 30, 2004, total backlog for the company's businesses was $1.5 billion compared to $0.7 billion for these same businesses at December 31, 2003.

Commenting on the results, Donald P. Fusilli, Jr., president and chief executive officer, said: "We continue to be pleased with our performance in 2004 and are encouraged by the business and market trends heading into 2005. On the Engineering side, the Federal market remains strong, and the eight- month extension of TEA-21 has allowed our state transportation department clients to award some limited projects for next year. In Energy, we are well positioned to capitalize on the opportunities being offered by our customers as they increase capital investments due to the higher commodity prices for oil and gas." He added that while the company's financial results to date include only a limited amount of incentive payments under performance-based contracts, Baker believes that it continues to add value to the customers it serves under these contract arrangements and is optimistic it will improve in 2005.
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