Tuesday, August 11, 2009

Fluor (FLR) - Solid as Usual

I have not had a chance to do a write up on Flowserve's (FLS) earnings yet, but Fluor (FLR) in engineering / construction and Flowserve in water services are 2 dominant machines. [Feb 26, 2009: Fluor and Flowserve Continue Best of Breed Ways] Fluor is trading at 14x this year's estimate but at this point 2010 is looking to be less profitable than 2009; we shall see how it plays out. Fluor reported last night - a slight beat on the bottom line and inline on the top line. Inline on guidance - as always the key with these E&C names is backlog; things seem to be holding up well there too.
  • New project awards for the quarter amounted to $6.8 billion, compared to $6.4 billion last year.
Full report here.

The stock is down today but it has been performing better than most of the peer group the past few months. I take it more as a 'sell the news' reaction.

If you are a full blown bull you should be buying these names hand over fist as energy prices skyrocket along with the global economy, and we pretend this credit implosion was just a nightmare that never really happened. I still am wary - funny thing we see today that China imported 18% more oil in July than June - yet oil prices didn't skyrocket in July (as they would of a year ago on similar news).... even with the dollar crumbling most of the month of July. Is it just happenstance that this "non reaction" in oil prices happened at the same time regulators finally are focusing on financial speculators' impact on the energy futures markets? Nah... just happenstance I am sure ;)

Long story short I am not exactly clear what the "clean" price of oil is anymore since Goldman, Morgan, JP, Citi and the boys have had their hands all over the market the past few years ... ahem, providing "liquidity" of course. Figuring out how markets work with some form of real regulation is a whole new ball game we need to adjust to. Fluor has more than half its business in "energy" and while most of the projects are very long term in nature you can see the CEO's comments below in regards to what his customers are saying. It sounds like the energy producers are similarly confused on what the outlook on pricing should be.

Via Reuters
  • Fluor Corp (FLR), the largest publicly traded U.S. engineering company, reported a better-than-expected profit along with growth in its order backlog despite a "very challenging economic environment." Fluor's backlog on June 30 had grown to $30.9 billion from $29.1 billion three months before, helped by its win of a contract to build the first phase of Imperial Oil Ltd's Kearl oil sands project in Alberta.
  • Chief Executive Alan Boeckmann reiterated his view in a conference call with analysts that the backlog would be over or "within shouting distance" of $30 billion by year-end, though he did see a tremendous amount of unease among clients about the strength of oil and gas prices. Fluor's oil and gas segment backlog, for example, has dropped by 25 percent since last year to $15.8 billion.
  • Fluor said on Monday that its second-quarter net income fell to $169 million, or 93 cents per share from $208 million, or $1.12 a share in the year ago period, which included 27 cents made on the sale of a stake in a wind farm. (so in reality ex wind farm, FLR made 85 cents last year and profit was up year over year) Analysts, on average had expected 91 cents, according to Reuters Estimates.
  • Fluor stuck with its full-year profit outlook of $3.80 to $4.10 per share.
Decent buzz from this analyst, who was content with the report.
  • An analyst applauded second-quarter results from Fluor Corp. Tuesday, citing improved profitability at the engineering and construction company's oil and gas business. R.W. Baird analyst Andrea Wirth maintained her "Outperform" rating and raised her price target to $67 from $60, saying the Irving, Texas-based company's business "saw few negatives in the quarter."
  • Fluor's global services business, which works with plant owners to improve operations, has been hurt by deferrals in small capital spending projects and other problems, Wirth said in a client note. In addition, Fluor's industrial and infrastructure business, which builds and renovates public works projects, faces "challenging margins" as construction begins on several projects, Wirth said.
  • However, the oil and gas business had strong margins despite expectations that pricing pressures will rise, Wirth said. "Looking forward, while management does not expect a meaningful number of 'elephant' contracts to come through in the next few quarters, it does expect to still win a meaningful number of mid-sized contracts and hold its backlog steady at roughly $30 billion throughout the remainder of the year," Wirth wrote.

A quick look at the business segments; in order of size - both Global Services and Power struggled year over year. Government of course grew like a banshee ... up 60%.
  1. Fluor’s Oil & Gas segment reported second quarter revenue of $3.0 billion, down 9 percent from the second quarter of 2008, while segment profit grew by 7 percent to $181 million. Results were driven by a reduced level of project execution activity, offset by an increase in segment margin in the quarter.
  2. Fluor’s Industrial & Infrastructure segment reported second quarter revenue of $998 million, up 9 percent over last year. Segment profit for the second quarter was $34 million, compared to $121 million a year ago. Results from last year included $79 million from the sale of Fluor’s joint venture interest in the Greater Gabbard Offshore Wind Farm project. Segment performance for the current quarter was impacted by lower margins on certain projects due to a higher content of construction activity.
  3. Revenue for the Government segment was $479 million for the second quarter of 2009, compared with $300 million a year ago. Segment profit was $34 million, up threefold from $11 million a year ago.
  4. The Global Services segment reported revenue of $452 million, down 35 percent from the second quarter of last year, and segment profit declined by 48 percent to $34 million. These declines were primarily due to sharply reduced levels of small capital projects and continued delay of refinery shutdown and turnaround work.
  5. Fluor’s Power segment reported revenue of $335 million, down 36 percent from $522 million last year. Segment profit increased to $27 million in the second quarter, compared with $25 million a year ago. Revenue declined as a large coal-fired project in Texas progressed closer to completion. Segment profit and margin improved due to favorable achievement of milestones on certain projects, and a greater mix of higher margin engineering and front-end projects
[Dec 3, 2008: Back of Envelope Look at Infrastructure Sector]
[Aug 12, 2008: Fluor to Hedge Fund Computers: The World Does not End at $110 Oil. Or $80. Or $50]
[Aug 11, 2008: Global Infrastructure Night in Earnings]
[May 16, 2008: Fluor as a Wind Play? $1.8 Billion Says Yes]
[Jul 9, 2008: Fluor vs Perini - a Rising Tide does not lift all Boats]
[Feb 28, 2008: Fluor with Great Report and Boosts Guidance]

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